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Filed Pursuant to Rule 497(e)
Registration File No.: 33-62158
MORGAN STANLEY DEAN WITTER
LIMITED TERM MUNICIPAL TRUST
PROSPECTUS --JUNE 30, 1998
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Morgan Stanley Dean Witter Limited Term Municipal Trust (the "Fund") is a
no-load, open-end diversified management investment company whose investment
objective is to provide a high level of current income that is exempt from
federal income tax, consistent with the preservation of capital and
prescribed standards of quality and maturity. The Fund seeks to achieve its
objective by investing predominately in intermediate term, investment grade
municipal securities with an anticipated average dollar-weighted maturity
range of 7 to 10 years and a maximum average dollar-weighted maturity of 12
years. (See "Investment Objective and Policies".)
Shares of the Fund are sold and redeemed at net asset value without the
imposition of a sales charge. In accordance with a Plan of Distribution
pursuant to Rule 12b-1 under the Investment Company Act of 1940 with Morgan
Stanley Dean Witter Distributors Inc. (the "Distributor"), the Fund
authorizes the Distributor or any of its affiliates, including Morgan Stanley
Dean Witter Advisors Inc., to make payments, out of their own resources, for
specific expenses incurred in promoting the distribution of the Fund's
shares.
This Prospectus sets forth concisely the information you should know before
investing in the Fund. It should be read and retained for future reference.
Additional information about the Fund is contained in the Statement of
Additional Information, dated June 30, 1998, which has been filed with the
Securities and Exchange Commission, and which is available at no charge upon
request of the Fund at the address or telephone numbers listed on this page.
The Statement of Additional Information is incorporated herein by reference.
MORGAN STANLEY DEAN WITTER
LIMITED TERM MUNICIPAL TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 392-2550 OR
(800) 869-NEWS (TOLL-FREE)
TABLE OF CONTENTS
Prospectus Summary..................................................... 2
Summary of Fund Expenses............................................... 3
Financial Highlights................................................... 3
The Fund and its Management............................................ 4
Investment Objective and Policies...................................... 4
Risk Considerations .................................................. 6
Investment Restrictions................................................ 8
Purchase of Fund Shares................................................ 9
Shareholder Services................................................... 10
Redemptions and Repurchases............................................ 13
Dividends, Distributions and Taxes..................................... 13
Performance Information................................................ 14
Additional Information................................................. 15
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Morgan Stanley Dean Witter Distributors Inc., Distributor
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PROSPECTUS SUMMARY
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The The Fund is organized as a Massachusetts business trust and is a no-load, open-end, diversified management
Fund investment company investing predominately in intermediate term municipal bonds.
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Shares Shares of beneficial interest with $0.01 par value (see page 15).
Offered
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Offering The price of the shares offered by this Prospectus is determined once daily as of 4:00 p.m., New York time,
Price on each day that the New York Stock Exchange is open, and is equal to the net asset value per share without a
sales charge (see page 10).
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Minimum Purchase Minimum initial purchase, $1,000; ($100 if the account is opened through EasyInvestSM); minimum subsequent
investment, $100 (see page 9).
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Investment The investment objective of the Fund is to provide investors with a high level of current income that is
Objective exempt from federal income tax, consistent with the preservation of capital and prescribed standards of quality
and maturity.
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Investment Policies The Fund will invest at least 75% of its net assets in municipal securities rated A or better by Moody's
Investors Service ("Moody's") or Standard & Poor's Corporation ("S&P"). The municipal securities in the Fund's
portfolio will have an anticipated average dollar-weighted maturity range of 7 to 10 years and a maximum
average dollar-weighted maturity of 12 years (see page 4).
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Investment Manager Morgan Stanley Dean Witter Advisors Inc., the Investment Manager of the Fund, and its wholly-owned
subsidiary, Morgan Stanley Dean Witter Services Company Inc., serve in various investment management, advisory,
management and administrative capacities to 101 investment companies and other portfolios with assets of
approximately $114.6 billion at May 31, 1998 (see page 4).
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Management The Investment Manager receives a monthly fee at the annual rate of 0.50% of the average daily net assets
Fee (see page 4).
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Dividends and Dividends are declared daily and paid monthly. Capital gains distributions, if any, are paid at least once a
Capital Gains year or are retained for reinvestment by the Fund. Dividends and distributions are automatically invested in
Distributions additional shares at net asset value unless the shareholder elects to receive cash (see page 13).
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Distributor Morgan Stanley Dean Witter Distributors Inc. (the "Distributor") sells shares of the Fund through Dean Witter
and Plan of Reynolds Inc. ("DWR") and other selected broker-dealers pursuant to selected broker-dealer agreements. The
Distribution Distributor has entered into a Plan of Distribution pursuant to Rule 12b-1 under the Investment Company Act of
1940, as amended (the "Act"), with the Fund authorizing the Distributor or any of its affiliates, including the
Investment Manager, to make payments out of their own resources for expenses incurred in connection with the
promotion or distribution of the Fund's shares (see page 9).
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Redemption Shares are redeemable at net asset value. An account may be involuntarily redeemed if total value of the
account is less than $100 or, if the account was opened through EasyInvestSM, if after twelve months the
shareholder has invested less than $1,000 in the account (see page 13).
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Shareholder Automatic Investment of Dividends and Distributions (unless otherwise requested); Investment of Distributions
Services Received in Cash; Exchange Privilege; Systematic Withdrawal Plan; EasyInvestSM (see page 10).
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Risk Considerations The prices of interest-bearing securities are inversely affected by changes in interest rates and, therefore,
are subject to the risk of market price fluctuations. The values of fixed-income securities also may be
affected by changes in the credit rating or financial condition of the issuing entities. Certain of the
tax-exempt securities in which the Fund may invest without limit may subject certain investors to the federal,
and any applicable state, alternative minimum tax (see page 6).
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The above is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus and in the Statement of Additional Information.
2
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SUMMARY OF FUND EXPENSES
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The following table illustrates all expenses and fees that a shareholder of
the Fund will incur. The expenses and fees set forth in the table are for the
fiscal year ended March 31, 1998.
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SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases................................. None
Maximum Sales Charge Imposed on Reinvested Dividends...................... None
Deferred Sales Charge..................................................... None
Redemption Fees........................................................... None
Exchange Fee.............................................................. None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees........................................................... 0.50%
12b-1 Fees................................................................ None
Other Expenses............................................................ 0.33%
Total Fund Operating Expenses............................................. 0.83%
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EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period: $8 $26 $46 $103
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES OF THE FUND MAY BE MORE OR LESS THAN
THOSE SHOWN.
The purpose of this table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. For a more complete description of these costs and expenses, see
"The Fund and Its Management."
FINANCIAL HIGHLIGHTS
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The following ratios and per share data for a share of beneficial interest
outstanding throughout each period have been audited by Price Waterhouse LLP,
independent accountants. The financial highlights should be read in
conjunction with the financial statements, the notes thereto and the
unqualified report of independent accountants which are contained in the
Statement of Additional Information. Further information about the
performance of the Fund is contained in the Fund's Annual Report to
Shareholders, which may be obtained without charge upon request from the
Fund.
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<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED MARCH 31, JULY 12, 1993*
------------------------------------------------- THROUGH
1998 1997 1996 1995 MARCH 31, 1994
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<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ... $ 9.91 $ 9.95 $ 9.56 $ 9.61 $10.00
----------- ----------- ----------- ----------- --------------
Net investment income.................... 0.40 0.40 0.41 0.42 0.29
Net realized and unrealized gain (loss) 0.35 (0.04) 0.39 (0.05) (0.39)
----------- ----------- ----------- ----------- --------------
Total from investment operations ........ 0.75 0.36 0.80 0.37 (0.10)
Less dividends from net investment
income.................................. (0.40) (0.40) (0.41) (0.42) (0.29)
----------- ----------- ----------- ----------- --------------
Net asset value, end of period........... $10.26 $ 9.91 $ 9.95 $ 9.56 $ 9.61
=========== =========== =========== =========== ==============
TOTAL INVESTMENT RETURN+.................. 7.70% 3.65% 8.42% 4.01% (1.11)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses................................. 0.83% 0.88%(4) 0.87%(4) 0.76% 0.31%(2)(3)
Net investment income.................... 3.92% 3.99% 4.09% 4.41% 3.92%(2)(3)
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands . $57,500 $61,098 $72,766 $85,499 $170,589
Portfolio turnover rate ................. -- -- -- 2% 6%(1)
</TABLE>
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* Commencement of operations.
+ Calculated based on the net asset value as of the last business day of
the period.
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all of its expenses that were assumed/reimbursed
or waived by the Investment Manager, the annualized expense and net
investment income ratios would have been 0.75% and 3.48%, respectively.
(4) Does not reflect the effect of expense offset of 0.01%.
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THE FUND AND ITS MANAGEMENT
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Morgan Stanley Dean Witter Limited Term Municipal Trust (the "Fund")
(formerly named Dean Witter Limited Term Municipal Trust) is a no-load,
open-end, diversified management investment company. The Fund is a trust of
the type commonly known as a "Massachusetts business trust" and was organized
under the laws of The Commonwealth of Massachusetts on February 25, 1993.
Morgan Stanley Dean Witter Advisors Inc. ("MSDW Advisors" or the
"Investment Manager"), whose address is Two World Trade Center, New York, New
York 10048, is the Fund's Investment Manager. The Investment Manager is a
wholly-owned subsidiary of Morgan Stanley Dean Witter & Co., a preeminent
global financial services firm that maintains leading market positions in
each of its three primary businesses--securities, asset management and credit
services. The Investment Manager, which was incorporated in July, 1992 under
the name Dean Witter InterCapital Inc., changed its name to Morgan Stanley
Dean Witter Advisors Inc. on June 22, 1998.
MSDW Advisors and its wholly-owned subsidiary, Morgan Stanley Dean Witter
Services Company Inc., ("MSDW Services"), serve in various investment
management, advisory, management and administrative capacities to a total of
101 investment companies, 28 of which are listed on the New York Stock
Exchange, with combined total assets, including this Fund, of approximately
$110.3 billion as of May 31, 1998. The Investment Manager also manages
portfolios of pensions plans, other institutions and individuals which
aggregated approximately $4.3 billion at such date.
The Fund has retained the Investment Manager, pursuant to an Investment
Management Agreement, to provide administrative services, manage its business
affairs and manage the investment of the Fund's assets, including the placing
of orders for the purchase and sale of portfolio securities. MSDW Advisors
has retained Morgan Stanley Dean Witter Services Company Inc. to perform the
aforementioned administrative services for the Fund. The Fund's Board of
Trustees reviews the various services provided by or under the direction of
the Investment Manager to ensure that the Fund's general investment policies
and programs are being properly carried out and that administrative services
are being provided to the Fund in a satisfactory manner.
As full compensation for the services and facilities furnished to the Fund
and for expenses of the Fund assumed by the Investment Manager, the Fund pays
the Investment Manager monthly compensation calculated daily by applying the
annual rate of 0.50% to the Fund's net assets determined as of the close of
each business day. For the fiscal year ended March 31, 1998, the Fund accrued
total compensation to the Investment Manager amounting to 0.50% of the Fund's
average daily net assets and the Fund's total expenses amounted to 0.83% of
the Fund's average daily net assets.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to provide a high level of current
income that is exempt from federal income tax, consistent with the
preservation of capital and prescribed standards of quality and maturity. The
Fund will seek to achieve its investment objective by investing predominately
in intermediate term municipal securities. The investment objective is a
fundamental policy of the Fund and may not be changed without the approval of
the holders of a majority of the Fund's shares. There is no assurance that
the Fund's investment objective will be achieved.
The Fund will invest at least 75% of its net assets in (a) Municipal Bonds
which are rated at the time of purchase within the three highest grades by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation
("S&P"); (b) Municipal Notes which at the time of purchase are rated in the
two highest grades by Moody's or S&P, or, if not rated, have outstanding one
or more issues of Municipal Bonds rated as set forth in clause (a) of this
paragraph; and (c) Municipal Commercial Paper which at the time of purchase
are rated P-1 by Moody's or A-1 by S&P. The Fund may also invest up to 25% of
its net assets in municipal securities rated Baa by Moody's or BBB by S&P, or
if not rated, are determined by the Investment Manager to be the equivalent
of Baa/BBB or better. A description of municipal security ratings is
contained in the Appendix to the Statement of Additional Information.
The municipal securities in the Fund's portfolio will have an anticipated
average dollar-weighted maturity range of 7 to 10 years, with a maximum
average dollar-weighted maturity of 12 years. However, at least 80% of the
net assets of the Fund will be subject to an average dollar-weighted maturity
constraint of 15 years. When computing the average dollar-weighted maturity,
the Fund intends to treat investments which permit the holder to demand
payment of principal at any time or at specified intervals prior to the
stated final maturity as having a maturity equal to the next demand date. The
final maturity of these demand obligations will be no more than
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25 years, until such time as the Staff of the Securities and Exchange
Commission has determined the appropriateness of using maturity shortening
techniques for obligations with longer final maturities.
The foregoing percentage and rating limitations apply at the time of
acquisition of a security based on the last previous determination of the net
asset value of the Fund. Any subsequent change in any rating by a rating
service or change in percentages resulting from market fluctuations or other
changes in total assets of the Fund will not require elimination of any
security from the Fund's portfolio. Therefore, the Fund may hold securities
which have been downgraded from ratings of Baa or BBB or lower by Moody's or
S&P. However such investments may not exceed 5% of the net assets of the
Fund. Any investments which exceed this limitation will be eliminated from
the portfolio within a reasonable period of time (such time as the Investment
Manager determines that it is practicable to sell the investment without
undue market or tax consequences to the Fund). Municipal obligations rated
below investment grade by Moody's or S&P are considered to be speculative
investments, some of which may not be currently paying any interest and may
have extremely poor prospects of ever attaining any real investment standing.
The two principal classifications of municipal obligations and commercial
paper are "general obligation" and "revenue" obligations or commercial paper.
General obligation bonds, notes or commercial paper are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Issuers of general obligation bonds, notes or
commercial paper include a state, its counties, cities, towns and other
governmental units. Revenue bonds, notes or commercial paper are payable from
the revenues derived from a particular facility or class of facilities or, in
some cases, from specific revenue sources. Revenue bonds, notes or commercial
paper are issued for a wide variety of purposes, including the financing of
electric, gas, water and sewer systems and other public utilities; industrial
development and pollution control facilities; single and multi-family housing
units; public buildings and facilities; air and marine ports, transportation
facilities such as toll roads, bridges and tunnels; and health and
educational facilities such as hospitals and dormitories. They rely primarily
on user fees to pay debt service, although the principal revenue source is
often supplemented by additional security features which are intended to
enhance the creditworthiness of the issuer's obligations. In some cases,
particularly revenue bonds issued to finance housing and public buildings, a
direct or implied "moral obligation" of a governmental unit may be pledged to
the payment of debt service. In other cases, a special tax or other charge
may augment user fees.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS. From
time to time, in the ordinary course of business, the Fund may purchase
securities on a when-issued or delayed delivery basis or may purchase or sell
securities on a forward commitment basis. When such transactions are
negotiated, the price is fixed at the time of the commitment, but delivery
and payment can take place a month or more after the date of the commitment.
There is no overall limit on the percentage of the Fund's assets which may be
committed to the purchase of securities on a when-issued, delayed delivery or
forward commitment basis. An increase in the percentage of the Fund's assets
committed to the purchase of securities on a when-issued, delayed delivery or
forward commitment basis may increase the volatility of the Fund's net asset
value.
WHEN, AS AND IF ISSUED SECURITIES. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a
merger, corporate reorganization, leveraged buyout or debt restructuring. If
the anticipated event does not occur and the securities are not issued, the
Fund will have lost an investment opportunity. There is no overall limit on
the percentage of the Fund's assets which may be committed to the purchase of
securities on a "when, as and if issued" basis. An increase in the percentage
of the Fund's assets committed to the purchase of securities on a "when, as
and if issued" basis may increase the volatility of its net asset value.
HEDGING ACTIVITIES
The Fund may enter into financial futures contracts, options on such futures
and municipal bond index futures contracts for hedging purposes.
FINANCIAL FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may invest in
financial futures contracts and related options thereon. The Fund may sell a
financial futures contract or purchase a put option on such futures contract,
if the Investment Manager anticipates interest rates to rise, as a hedge
against a decrease in the value of the Funds' portfolio securities. If the
Investment Manager anticipates that interest rates will decline, the Fund may
purchase a financial futures contract or a call option thereon to protect
against an increase in the price of the securities that the Fund intends to
purchase. These futures contracts and related options thereon will be used
only as a hedge against anticipated interest rate changes. A futures contract
sale creates an obligation by the Fund, as seller, to deliver the specific
type of instrument called for in the contract at a specified future time for
a specified price. A futures contract purchase would create an obligation by
the Fund, as purchaser, to take delivery of the
5
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specific type of financial instrument at a specified future time at a
specified price. The specific securities delivered or taken, respectively, at
settlement date, would not be determined until or near that date. The
determination would be in accordance with the rules of the exchange on which
the futures contract sale or purchase was effected.
Although the terms of financial futures contracts specify actual delivery
or receipt of securities, in most instances the contracts are closed out
before the settlement date without the making or taking of delivery of the
securities. Closing out of a futures contract is effected by entering into an
offsetting purchase or sale transaction.
Unlike a financial futures contract, which requires the parties to buy and
sell a security on a set date, an option on such a futures contract entitles
its holder to decide on or before a future date whether to enter into such a
contract (a long position in the case of a call option and a short position
in the case of a put option). If the holder decides not to enter into the
contract, the premium paid for the option on the contract is lost. Since the
value of the option is fixed at the point of sale, there are no daily
payments of cash to reflect the change in the value of the underlying
contract as there is by a purchaser or seller of a futures contract. The
value of the option does change and is reflected in the net asset value of
the Fund.
MUNICIPAL BOND INDEX FUTURES. The Fund may utilize municipal bond index
futures contracts for hedging purposes. The strategies in employing such
contracts will be similar to that discussed above with respect to financial
futures and options thereon. A municipal bond index is a method of reflecting
in a single number the market value of many different municipal bonds and is
designed to be representative of the municipal bond market generally. The
index fluctuates in response to changes in the market values of the bonds
included within the index. Unlike futures contracts on particular financial
instruments, transactions in futures on a municipal bond index will be
settled in cash, if held until the close of trading in the contract. However,
like any other futures contract, a position in the contract may be closed out
by a purchase or sale of an offsetting contract for the same delivery month
prior to expiration of the contract.
The Fund may not enter into futures contracts or related options thereon
if, immediately thereafter, the amount committed to margin plus the amount
paid for option premiums exceeds 5% of the value of the Fund's total assets.
The Fund may not purchase or sell futures contracts or related options, if,
immediately thereafter, more than one-third of the net assets of the Fund
would be hedged.
OPTIONS. The Fund may purchase or sell (write) options on debt securities as
a means of achieving additional return or hedging the value of the Fund's
portfolio. The Fund would only buy options listed on national securities
exchanges. The Fund will not purchase options on behalf of the Fund if, as a
result, the aggregate cost of all outstanding options exceeds 10% of the
Fund's total assets.
LENDING OF PORTFOLIO SECURITIES. The Fund will not lend portfolio securities
if such loans are not permitted by the laws or regulations of any state in
which its shares are qualified for sale and will not lend more than 25% of
the value of the total assets of the Fund.
RISK CONSIDERATIONS
MUNICIPAL SECURITIES AND RATINGS. The value of the Fund's portfolio
securities and, therefore, the Fund's net asset value per share, may increase
or decrease due to various factors, principally changes in prevailing
interest rates and the ability of the issuers of the Fund's portfolio
securities to pay interest and principal on such obligations on a timely
basis. Generally, a rise in interest rates will result in a decrease in the
Fund's net asset value per share, while a drop in interest rates will result
in an increase in the Fund's net asset value per share.
Under normal conditions, at least 80% of the total assets of the Fund will
be invested in securities, the interest on which is exempt from federal
income taxes. However, the Fund may invest more than 20% of its total assets
in taxable money market instruments in order to maintain a temporary
"defensive" position, when, in the opinion of the Investment Manager,
prevailing market or financial conditions (including unavailability of
securities of requisite quality) so warrant. Certain of the tax-exempt
securities in which the Fund may invest without limit may subject certain
investors to the federal alternative minimum tax or any applicable state
alternative minimum tax and, therefore, a substantial portion of the income
produced by the Fund may be taxable to such investors under any federal or
any applicable state alternative minimum tax. The Fund, therefore, may not be
a suitable investment for investors who are subject to the alternative
minimum tax. The suitability of the Fund for these investors will depend upon
a comparison of the after-tax yield likely to be provided from the Fund to
comparable tax-exempt investments not subject to such tax and also to
comparable fully taxable investments in light of each investor's tax
position. See "Dividends, Distributions and Taxes."
Investments in municipal bonds rated either Baa by Moody's or BBB by S&P
(investment grade bonds--the lowest rated permissible investments by the
Fund) have
6
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speculative characteristics and, therefore, changes in economic conditions or
other circumstances are more likely to weaken their capacity to make
principal and interest payments than would be the case with investments in
securities with higher credit ratings.
The ratings assigned by Moody's and S&P represent their opinions as to the
quality of the securities which they undertake to rate (see the Appendix to
the Statement of Additional Information). It should be emphasized, however,
that the ratings are general and not absolute standards of quality.
LEASE OBLIGATIONS. Included within the revenue bonds category, as noted
above, are participations in lease obligations or installment purchase
contracts (hereinafter collectively called "lease obligations") of
municipalities. State and local governments, agencies or authorities issue
lease obligations to acquire equipment and facilities. Lease obligations may
have risks not normally associated with general obligation or other revenue
bonds. Leases, and installment purchase or conditional sale contracts (which
may provide for title to the leased asset to pass eventually to the issuer),
have developed as a means for governmental issuers to acquire property and
equipment without the necessity of complying with the constitutional and
statutory requirements generally applicable for the issuance of debt. Certain
lease obligations contain "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease
or contract unless money is appropriated for such purpose by the appropriate
legislative body on an annual or other periodic basis. Consequently,
continued lease payments on those lease obligations containing
"non-appropriation" clauses are dependent on future legislative actions. If
such legislative actions do not occur, the holders of the lease obligation
may experience difficulty in exercising their rights, including disposition
of the property.
In addition, lease obligations represent a relatively new type of
financing that has not yet developed the depth of marketability associated
with more conventional municipal obligations, and, as a result, certain of
such lease obligations may be considered illiquid securities. To determine
whether or not the Fund will consider such securities to be illiquid (the
Fund may not invest more than fifteen percent of its net assets in illiquid
securities), the Trustees of the Fund have established guidelines to be
utilized by the Fund in determining the liquidity of a lease obligation. The
factors to be considered in making the determination include: 1) the
frequency of trades and quoted prices for the obligation; 2) the number of
dealers willing to purchase or sell the security and the number of other
potential purchasers; 3) the willingness of dealers to undertake to make a
market in the security; and 4) the nature of the marketplace trades,
including the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of the transfer.
FUTURES CONTRACTS AND OPTIONS ON FUTURES. A risk in employing futures
contracts to protect against the price volatility of portfolio securities is
that the prices of securities subject to such futures contracts may correlate
imperfectly with the behavior of the cash prices of the Fund's portfolio
securities. The risk of imperfect correlation will be increased by the fact
that the financial futures contracts in which the Fund may invest are on
taxable securities rather than tax-exempt securities, and there is no
guarantee that the prices of taxable securities will move in a similar manner
to the prices of tax-exempt securities. The correlation may be distorted by
the fact that the futures market is dominated by short-term traders seeking
to profit from the difference between a contract or security price objective
and their cost of borrowed funds. Such distortions are generally minor and
would diminish as the contract approached maturity.
Another risk is that the Investment Manager could be incorrect in its
expectations as to the direction or extent of various interest rate movements
or the time span within which the movements take place. For example, if the
Fund sold financial futures contracts for the sale of securities in
anticipation of an increase in interest rates, and then interest rates went
down instead, causing bond prices to rise, the Fund would lose money on the
sale.
In addition to the risks that apply to all options transactions (see the
Statement of Additional Information for a description of the characteristics
of, and the risks of investing in, options on debt securities), there are
several special risks relating to options on futures. In particular, the
ability to establish and close out positions on such options will be subject
to the development and maintenance of a liquid secondary market. It is not
certain that this market will develop or be maintained.
ZERO COUPON SECURITIES. A portion of the fixed-income securities purchased by
the Fund may be zero coupon securities. Such securities are purchased at a
discount from their face amount, giving the purchaser the right to receive
their full value at maturity. The interest earned on such securities is,
implicitly, automatically compounded and paid out at maturity. While such
compounding at a constant rate eliminates the risk of receiving lower yields
upon reinvestment of interest if prevailing interest rates decline, the owner
of a zero coupon security will be unable to participate in higher yields upon
reinvestment of interest received on interest-paying securities if prevailing
interest rates rise.
7
<PAGE>
A zero coupon security pays no interest to its holder during its life.
Therefore, to the extent the Fund invests in zero coupon securities, it will
not receive current cash available for distribution to shareholders. In
addition, zero coupon securities are subject to substantially greater price
fluctuations during periods of changing prevailing interest rates than are
comparable securities which pay interest on a current basis. Current federal
tax law requires that a holder (such as the Fund) of a zero coupon security
accrue a portion of the discount at which the security was purchased as
income each year even though the Fund receives no interest payments in cash
on the security during the year.
YEAR 2000. The investment management services provided to the Fund by the
Investment Manager and the services provided to shareholders by the
Distributor and the Transfer Agent depend on the smooth functioning of their
computer systems. Many computer software systems in use today cannot
recognize the year 2000, but revert to 1900 or some other date, due to the
manner in which dates were encoded and calculated. That failure could have a
negative impact on the handling of securities trades, pricing and account
services. The Investment Manager, the Distributor and the Transfer Agent have
been actively working on necessary changes to their own computer systems to
prepare for the year 2000 and expect that their systems will be adapted
before that date, but there can be no assurance that they will be successful,
or that interaction with other non-complying computer systems will not impair
their services at that time.
In addition, it is possible that the markets for securities in which the
Fund invests may be detrimentally affected by computer failures throughout
the financial services industry beginning January 1, 2000. Improperly
functioning trading systems may result in settlement problems and liquidity
issues. In addition, corporate and governmental data processing errors may
result in production problems for individual companies and overall economic
uncertainties. Earnings of individual issuers will be affected by remediation
costs, which may be substantial. Accordingly, the Fund's investments may be
adversely affected.
For additional risk disclosure, please refer to the "Investment Objective
and Policies" section of the Prospectus and to the "Investment Practices and
Policies" section of the Statement of Additional Information.
PORTFOLIO MANAGEMENT
The Fund's portfolio is actively managed by its Investment Manager with a
view to achieving the Fund's investment objective. The Fund is managed within
MSDW Advisors' Tax-Exempt Group, which manages 39 tax-exempt municipal bond
funds, with approximately $11 billion in assets as of May 31, 1998. Ms.
Katherine H. Stromberg is the Fund's portfolio manager. Ms. Stromberg has
been a municipal bond portfolio manager for more than 15 years and has been a
portfolio manager at MSDW Advisors for over five years. In determining which
securities to purchase for the Fund or hold in the Fund's portfolio, the
Investment Manager will rely on information from various sources, including
research, analysis and appraisals of brokers and dealers, including Dean
Witter Reynolds Inc., Morgan Stanley & Co. Incorporated and other
broker-dealers that are affiliates of the Investment Manager, the views of
others regarding economic developments and interest rate trends; and the
Investment Manager's own analysis of factors it deems relevant.
Brokerage commissions are not normally charged on the purchase or sale of
municipal obligations, but such transactions may involve costs in the form of
spreads between bid and asked prices. Pursuant to an order of the Securities
and Exchange Commission, the Fund may effect principal transactions in
certain taxable money market instruments with Dean Witter Reynolds Inc. In
addition, the Fund may incur brokerage commissions on futures' and options'
transactions conducted through Dean Witter Reynolds Inc., Morgan Stanley &
Co. Incorporated and other brokers and dealers that are affiliates of the
Investment Manager. It is not anticipated that the portfolio trading engaged
in by the Fund will result in its portfolio turnover rate exceeding 100%.
INVESTMENT RESTRICTIONS
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The investment restrictions listed below are among the restrictions, a
complete listing of which is contained in the Statement of Additional
Information, which have been adopted by the Fund as fundamental policies.
Under the Investment Company Act of 1940, as amended (the "Act"), a
fundamental policy may not be changed without the vote of a majority of the
outstanding voting securities of the Fund, as defined in the Act.
For purposes of the following restrictions: (a) an "issuer" of a security
is the entity whose assets and revenues are committed to the payment of
interest and principal on that particular security, provided that the
guarantee of a security will be considered a separate security and provided
further that a guarantee of a security shall not be deemed to be a security
issued by the guarantor if the value of all securities issued or
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guaranteed by the guarantor and owned by the Fund does not exceed 10% of the
value of the total assets of the Fund; (b) a "taxable security" is any
security the interest on which is subject to federal income tax; and (c) all
percentage limitations apply immediately after a purchase or initial
investment, and any subsequent change in any applicable percentage resulting
from market fluctuations does not require elimination of any security from
the portfolio.
The Fund may not:
1. With respect to 75% of its total assets, purchase securities of any
issuer if, immediately thereafter, more than 5% of the value of its total
assets are in the securities of any one issuer (other than obligations issued,
or guaranteed by, the United States Government, its agencies or
instrumentalities).
2. With respect to 75% of its total assets, purchase more than 10% of all
outstanding taxable debt securities of any one issuer (other than debt
securities issued, or guaranteed as to principal and interest by, the United
States Government, its agencies or instrumentalities).
3. Invest 25% or more of the value of its total assets in securities of
ssuers in any one industry (industrial development and pollution control bonds
are grouped into industries based upon the business in which the issuers of
such obligations are engaged). This restriction does not apply to obligations
issued or guaranteed by the United States Government, its agencies or
instrumentalities or to domestic bank obligations.
Notwithstanding any other investment policy or restriction, the Fund may
seek to achieve its investment objective by investing all or substantially
all of its assets in another investment company having substantially the same
investment objective and policies as the Fund.
PURCHASE OF FUND SHARES
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The Fund offers it shares for sale to the public on a continuous basis at
the offering price without the imposition of a sales charge. The offering
price will be the net asset value per share next determined following receipt
of an order (see "Determination of Net Asset Value"). Pursuant to a
Distribution Agreement between the Fund and Morgan Stanley Dean Witter
Distributors Inc. ("MSDW Distributors" or the "Distributor"), an affiliate of
the Investment Manager, shares of the Fund are distributed by the Distributor
and are offered by Dean Witter Reynolds Inc. ("DWR"), a selected dealer and
subsidiary of Morgan Stanley Dean Witter & Co., and other broker-dealers
which have entered into selected broker-dealer agreements with the
Distributor ("Selected Broker-Dealers"). It is anticipated that DWR will
undergo a change of corporate name which is expected to incorporate the brand
name of "Morgan Stanley Dean Witter," pending approval of various regulatory
authorities. The principal executive office of the Distributor is located at
Two World Trade Center, New York, New York 10048.
The minimum initial purchase is $1,000 and subsequent purchases of $100 or
more may be made by sending a check, payable to Morgan Stanley Dean Witter
Limited Term Municipal Trust, directly to Morgan Stanley Dean Witter Trust
FSB (the "Transfer Agent" or "MSDW Trust") at P.O. Box 1040, Jersey City, NJ
07303 or by contacting a Morgan Stanley Dean Witter Financial Advisor or
other Selected Broker-Dealer representative. The minimum initial purchase in
the case of investments through EasyInvestSM, an automatic purchase plan (see
"Shareholder Services"), is $100, provided that the schedule of automatic
investments will result in investments totalling at least $1,000 within the
first twelve months. In the case of investments pursuant to Systematic
Payroll Deduction Plans (including Individual Retirement Plans), the Fund, in
its discretion, may accept investments without regard to any minimum amounts
which would otherwise be required if the Fund has reason to believe that
additional investments will increase the investment in all accounts under
such Plans to at least $1,000. Certificates for shares purchased will not be
issued unless a request is made by the shareholder in writing to the Transfer
Agent.
Shares of the Fund are sold through the Distributor or a Selected
Broker-Dealer on a normal three business day settlement basis; that is,
payment is due on the third business day (settlement date) after the order is
placed with the Distributor or Selected Broker-Dealer. Shares of the Fund
purchased through the Distributor are entitled to dividends beginning on the
next business day following settlement date. Since DWR or other Selected
Broker-Dealers forward investors' funds on settlement date, they will benefit
from the temporary use of the funds if payment is made prior thereto. Shares
purchased through the Transfer Agent are entitled to dividends beginning on
the next business day following receipt of an order. As noted above, orders
placed directly with the Transfer Agent must be accompanied by payment.
Investors will be entitled to receive capital gains distributions if their
order is received by the close of business on the day prior
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to the record date for such distributions. Investors will be entitled to
receive income dividends if their order is received by the close of business
on the day prior to the record date for such dividends and distributions.
Sales personnel of a Selected Broker-Dealer are compensated for shares of
the Fund sold by them by the Distributor or any of its affiliates and/or by a
Selected Broker-Dealer. In addition, some sales personnel of the Selected
Broker-Dealer will receive non-cash compensation as special sales incentives,
including trips, educational and/or business seminars and merchandise. The
Fund and the Distributor reserve the right to reject any purchase orders.
PLAN OF DISTRIBUTION
The Fund has entered into a Plan of Distribution pursuant to Rule 12b-1 under
the Act with the Distributor whereby the Distributor is authorized to utilize
its own resources or those of its affiliates, including MSDW Advisors, to
finance certain services and activities in connection with the distribution
of the Fund's shares. The principal activities and services which may be
provided by the Distributor, DWR, its affiliates and other Selected
Broker-Dealers under the Plan include: (1) compensation to and expenses of
Morgan Stanley Dean Witter Financial Advisors and other Selected
Broker-Dealer representatives and other employees of the Distributor and
other Selected Broker-Dealers, including overhead and telephone expenses; (2)
sales incentives and bonuses to sales representatives and to marketing
personnel in connection with promoting sales of the Fund's shares; (3)
expenses incurred in connection with promoting sales of the Fund's shares;
(4) preparing and distributing sales literature; and (5) providing
advertising and promotional activities, including direct mail solicitation
and television, radio, newspaper, magazine and other media advertisements.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once daily at 4:00
p.m., New York time (or, on days when the New York Stock Exchange closes
prior to 4:00 p.m., at such earlier time), on each day that the New York
Stock Exchange is open by taking the value of all assets of the Fund,
subtracting all of its respective liabilities, dividing by the number of
shares outstanding and adjusting to the nearest cent. The net asset value per
share of the Fund will not be determined on Good Friday and on such other
federal and non-federal holidays as are observed by the New York Stock
Exchange.
Certain of the Fund's portfolio securities (other than short-term taxable
debt securities, futures and options) may be valued by an outside independent
pricing service approved by the Fund's Trustees. The service may utilize a
computerized grid matrix of tax-exempt securities and evaluations by its
staff in determining what it believes is the fair value of the Fund's
portfolio securities. The Board believes that timely and reliable market
quotations are generally not readily available to the Fund for purposes of
valuing tax-exempt securities and that the valuations supplied by the pricing
service are more likely to approximate the fair value of such securities. A
more detailed discussion of valuation procedures is in the Fund's Statement
of Additional Information.
SHAREHOLDER SERVICES
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AUTOMATIC INVESTMENT OF DIVIDENDS AND DISTRIBUTIONS. All income dividends and
capital gains distributions are automatically paid in full and fractional
shares of the Fund (or, if specified by the shareholder, any other open-end
investment company for which MSDW Advisors serves as investment manager
(collectively, with the Fund, the "Morgan Stanley Dean Witter Funds")),
unless the shareholder requests that they be paid in cash. Such dividends and
distributions will be paid, at the net asset value per share, in shares of
the Fund (or in cash if the shareholder so requests) on the monthly payment
date, which will be no later than the last business day of the month for
which the dividend or distribution is payable. Processing of dividend checks
begins immediately following the monthly payment date. Shareholders who have
requested to receive dividends in cash will normally receive their monthly
dividend check during the first ten days of the following month.
EASYINVEST (SERVICE MARK). Shareholders may subscribe to EasyInvest, an
automatic purchase plan which provides for any amount from $100 to $5,000 to
be transferred automatically from a checking or savings account, or following
redemption of shares of a Morgan Stanley Dean Witter money market fund, on a
semi-monthly, monthly or quarterly basis, to the Fund's Transfer Agent for
investment in shares of the Fund.
SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan (the "Withdrawal
Plan") is available for shareholders who own or purchase shares of the Fund
having a minimum value of $10,000 based upon the then current net asset
value. The Withdrawal Plan provides for monthly or quarterly (March, June,
September and December) checks in any dollar amount, not less than $25, or in
any whole percentage of the account balance, on an annualized basis.
Withdrawal Plan payments should not be
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considered as dividends, yields or income. If periodic withdrawal plan
payments continuously exceed net investment income and net capital gains, the
shareholder's original investment could be correspondingly reduced and
ultimately exhausted.
Each withdrawal constitutes a redemption of shares and any gain or loss
realized must be recognized for federal income, and generally, for state and
local tax purposes.
Shareholders should contact their Morgan Stanley Dean Witter Financial
Advisor or other Selected Broker-Dealer representative or the Transfer Agent
for further information about any of the above services.
EXCHANGE PRIVILEGE. An "Exchange Privilege," that is, the privilege of
exchanging shares of certain Morgan Stanley Dean Witter Funds for shares of
the Fund, exists whereby shares of Morgan Stanley Dean Witter Funds that are
multiple class funds ("Morgan Stanley Dean Witter Multi-Class Funds"), shares
of Morgan Stanley Dean Witter Multi-State Municipal Series Trust and Morgan
Stanley Dean Witter Hawaii Municipal Trust, which are Morgan Stanley Dean
Witter Funds sold with a front-end sales charge ("FSC Funds"), and shares of
Morgan Stanley Dean Witter Global Short-Term Income Fund Inc. ("Global
Short-Term"), which is a Morgan Stanley Dean Witter Fund offered with a
contingent deferred sales charge ("CDSC"), may be exchanged for shares of the
Fund, Morgan Stanley Dean Witter Intermediate Term U.S. Treasury Trust,
Morgan Stanley Dean Witter Short-Term U.S. Treasury Trust and Morgan Stanley
Dean Witter Short-Term Bond Fund, and for shares of five Morgan Stanley Dean
Witter Funds which are money market funds: Morgan Stanley Dean Witter Liquid
Asset Fund Inc., Morgan Stanley Dean Witter U.S. Government Money Market
Trust, Morgan Stanley Dean Witter Tax-Free Daily Income Trust, Morgan Stanley
Dean Witter California Tax Free Daily Income Trust and Morgan Stanley Dean
Witter New York Municipal Money Market Trust (which nine funds, including the
Fund, are hereinafter collectively referred to as "Exchange Funds"). Shares
of the Exchange Funds received in an exchange for shares of a Morgan Stanley
Dean Witter Multi-Class Fund may be redeemed and exchanged only for shares of
the corresponding Class of a Morgan Stanley Dean Witter Multi-Class Fund or
for shares of one of the other Exchange Funds, provided that shares of the
Exchange Funds received in an exchange for Class A shares of a Morgan Stanley
Dean Witter Multi-Class Fund may also be redeemed and exchanged for shares of
a FSC Fund, and shares of the Exchange Funds received in an exchange for
Class B shares of a Morgan Stanley Dean Witter Multi-Class Fund may also be
redeemed and exchanged for shares of Global Short-Term. In addition, shares
of the Exchange Funds received in an exchange for shares of a FSC Fund may be
redeemed and exchanged for Class A shares of a Morgan Stanley Dean Witter
Multi-Class Fund or for shares of one of the other Exchange Funds, and shares
of the Exchange Funds received in an exchange for shares of Global Short-Term
may be redeemed and exchanged for Class B shares of a Morgan Stanley Dean
Witter Multi-Class Fund or for shares of one of the other Exchange Funds.
An exchange to an Exchange Fund that is not a money market fund is on the
basis of the next calculated net asset value per share of each fund after the
exchange order is received. When exchanging into a money market fund, shares
of the Multi-Class Fund, the FSC Fund, Global Short-Term or the Exchange Fund
are redeemed at their next calculated net asset value and exchanged for
shares of the money market fund at their net asset value determined the
following business day. Ultimately, any applicable CDSC will have to be paid
upon redemption of shares originally purchased from Global Short-Term or a
Class of a Morgan Stanley Dean Witter Multi-Class Fund that imposes a CDSC.
(If shares of an Exchange Fund received in exchange for shares originally
purchased from Global Short-Term or Class B of a Morgan Stanley Dean Witter
Multi-Class Fund are exchanged for shares of Global Short-Term or another
Morgan Stanley Dean Witter Multi-Class Fund having a different CDSC schedule
than that of Global Short-Term or the Morgan Stanley Dean Witter Multi-Class
Fund from which the Exchange Fund shares were acquired, the shares will be
subject to the higher CDSC schedule.) During the period of time the shares
originally purchased from Global Short-Term or from a Class of a Morgan
Stanley Dean Witter Multi-Class Fund that imposes a CDSC remain in the
Exchange Fund, the holding period (for the purpose of determining the rate of
CDSC) is frozen. If those shares are subsequently re-exchanged for shares of
a Morgan Stanley Dean Witter Multi-Class Fund or shares of Global Short-Term,
the holding period previously frozen when the first exchange was made resumes
on the last day of the month in which shares of a Morgan Stanley Dean Witter
Multi-Class Fund or shares of Global Short-Term are reacquired. Thus, the
CDSC is based upon the time (calculated as described above) the shareholder
was invested in shares of a Morgan Stanley Dean Witter Multi-Class Fund or in
shares of Global Short-Term. In the case of exchanges of Class A shares of a
Morgan Stanley Dean Witter Multi-Class Fund which are subject to a CDSC, the
holding period also includes the time (calculated as described above) the
shareholder was invested in shares of a FSC Fund. In the case of shares
exchanged into an Exchange Fund on or after April 23, 1990, upon a redemption
of shares which results in a CDSC being imposed, a credit (not to exceed the
amount
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of the CDSC) will be given in an amount equal to the Exchange Fund 12b-1
fees, if any, incurred on or after that date which are attributable to those
shares (see "Purchase of Fund Shares--Plan of Distribution" in the respective
Exchange Fund Prospectus for a description of Exchange Fund distribution
fees). Exchanges may be made after the shares of the fund acquired by
purchase (not by exchange or dividend reinvestment) have been held for thirty
days. There is no waiting period for exchanges of shares acquired by exchange
or dividend reinvestment.
ADDITIONAL INFORMATION REGARDING EXCHANGES. Purchases and exchanges should be
made for investment purposes only. A pattern of frequent exchanges may be
deemed by the Distributor to be abusive and contrary to the best interests of
the Fund's other shareholders and, at the Distributor's discretion, may be
limited by the Fund's refusal to accept additional purchases and/or exchanges
from the investor. Although the Fund does not have any specific definition of
what constitutes a pattern of frequent exchanges, and will consider all
relevant factors in determining whether a particular situation is abusive and
contrary to the best interests of the Fund and its other shareholders,
investors should be aware that the Fund and each of the other Morgan Stanley
Dean Witter Funds may in their discretion limit or otherwise restrict the
number of times this Exchange Privilege may be exercised by any investor. Any
such restriction will be made by the Fund on a prospective basis only, upon
notice to the shareholder not later than ten days following such
shareholder's most recent exchange.
The Exchange Privilege may be terminated or revised at any time by the
Fund and/or any of such Morgan Stanley Dean Witter Funds for which shares of
the Fund may be exchanged, upon such notice as may be required by applicable
regulatory agencies (presently sixty days' prior written notice for
termination or material revision), provided that six months' prior written
notice of termination will be given to the shareholders who hold shares of
the Exchange Funds pursuant to this Exchange Privilege, and provided further
that the Exchange Privilege may be terminated or materially revised without
notice under certain unusual circumstances. Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
Morgan Stanley Dean Witter Financial Advisor or other Selected Broker-Dealer
representative regarding restrictions on exchange of shares of the Fund
pledged in their margin account.
The current prospectus for each fund describes its investment objective(s)
and policies, and shareholders should obtain one and read it carefully before
investing. Exchanges are subject to the minimum investment requirement of
each Class of shares and any other conditions imposed by each fund. In the
case of any shareholder holding a share certificate or certificates, no
exchanges may be made until all applicable share certificates have been
received by the Transfer Agent and deposited in the shareholder's account. An
exchange will be treated for federal income tax purposes the same as a
repurchase or redemption of shares, on which the shareholder may realize a
capital gain or loss. However, the ability to deduct capital losses on an
exchange may be limited in situations where there is an exchange of shares
within ninety days after the shares are purchased. The Exchange Privilege is
only available in states where an exchange may legally be made.
If DWR or another Selected Broker-Dealer is the current broker-dealer of
record and its account numbers are part of the account information,
shareholders may initiate an exchange of shares of the Fund for shares of any
of the above Morgan Stanley Dean Witter Funds pursuant to this Exchange
Privilege by contacting their Morgan Stanley Dean Witter Financial Advisor or
other selected Broker-Dealer representative (no Exchange Privilege
Authorization Form is required). Other shareholders (and those shareholders
who are clients of DWR or another Selected Broker-Dealer but who wish to make
exchanges directly by writing or telephoning the Transfer Agent) must
complete and forward to the Transfer Agent an Exchange Privilege
Authorization Form, copies of which may be obtained from the Transfer Agent,
to initiate an exchange. If the Authorization Form is used, exchanges may be
made by contacting the Transfer Agent at (800) 869-NEWS (toll-free).
The Fund will employ reasonable procedures to confirm that exchange
instructions communicated over the telephone are genuine. Such procedures
include requiring various forms of personal identification such as name,
mailing address, social security or other tax identification number and DWR
or other Selected Broker-Dealer account number (if any). Telephone
instructions will also be recorded. If such procedures are not employed, the
Fund may be liable for any losses due to unauthorized or fraudulent
instructions.
Telephone exchange instructions will be accepted if received by the
Transfer Agent between 9:00 a.m. and 4:00 p.m. New York time, on any day the
New York Stock Exchange is open. Any shareholder wishing to make an exchange
who has previously filed an Exchange Privilege Authorization Form and who is
unable to reach the Fund by telephone should contact his or her Morgan
Stanley Dean Witter Financial Advisor or other Selected Broker-Dealer
representative, if appropriate, or make a written exchange request.
Shareholders are advised that during periods of drastic economic or market
changes it is
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possible that the telephone exchange procedures may be difficult to
implement, although this has not been the experience of the Morgan Stanley
Dean Witter Funds in the past.
For further information regarding the Exchange Privilege, shareholders
should contact their Morgan Stanley Dean Witter Financial Advisor or other
Selected Broker-Dealer representative or the Transfer Agent.
REDEMPTIONS AND REPURCHASES
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REDEMPTION. Shares of the Fund can be redeemed for cash at any time at its
respective current net asset value per share (without any redemption or other
charge). If shares are held in a shareholder's account without a share
certificate, a written request for redemption is required. If certificates
are held by the shareholder, the shares may be redeemed by surrendering the
certificates with a written request for redemption along with any additional
documentation required by the Transfer Agent, to the Fund's Transfer Agent at
P.O. Box 983, Jersey City, NJ 07303.
REPURCHASE. DWR and other Selected Broker-Dealers are authorized to
repurchase shares represented by a share certificate which is delivered to
any of their offices. Shares held in a shareholder's account without a share
certificate may also be repurchased by DWR and other Selected Broker-Dealers
upon the telephonic request of the shareholder. The repurchase price is the
net asset value next determined (see "Purchase of Fund Shares--Determination
of Net Asset Value") after such repurchase order is received by DWR and other
Selected Broker-Dealers.
PAYMENT FOR SHARES REDEEMED OR REPURCHASED. Payment for shares presented for
repurchase or redemption will be made by check within seven days after
receipt by the Transfer Agent of the certificate and/or written request in
good order. Such payment may be postponed or the right of redemption
suspended under unusual circumstances. If the shares to be redeemed have
recently been purchased by check, payment of the redemption proceeds may be
delayed for the minimum time needed to verify that the check used for
investment has been honored (not more than fifteen days from the time of
receipt of the check by the Transfer Agent). Shareholders maintaining margin
accounts with DWR or another Selected Broker-Dealer are referred to their
Morgan Stanley Dean Witter Financial Advisor or other Selected Broker-Dealer
representative regarding restrictions on redemption of shares of the Fund
pledged in the margin account.
INVOLUNTARY REDEMPTION. The Fund reserves the right to redeem, on 60 days'
notice and at net asset value, the shares (other than shares held in an
Individual Retirement Account or Custodial Account under Section 403(b)(7) of
the Internal Revenue Code) of any shareholder whose shares have a value of
less than $100 as a result of redemptions or repurchases, or such lesser
amount as may be fixed by the Trustees or, in the case of an account opened
through EasyInvestSM, if after twelve months the shareholder has invested
less than $1,000 in the account. However, before the Fund redeems such shares
and sends the proceeds to the shareholder, it will notify the shareholder
that the value of the shares is less than the applicable amount and allow the
shareholder sixty days to make an additional investment in an amount which
will increase the value of his or her account to at least the applicable
amount before the redemption is processed.
REINSTATEMENT PRIVILEGE. A shareholder who has had his or her shares redeemed
or repurchased and has not previously exercised this reinstatement privilege
may, within thirty days after the date of the redemption or repurchase,
reinstate any portion or all of the proceeds of such redemption or repurchase
in shares of a Morgan Stanley Dean Witter Fund at net asset value next
determined after a reinstatement request, together with the proceeds, is
received by the Transfer Agent and receive a pro-rata credit for any CDSC
paid in connection with such redemption or repurchase.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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DIVIDENDS AND DISTRIBUTIONS. The Fund declares dividends on each day the New
York Stock Exchange is open for business. Such dividends are payable monthly.
The Fund intends to distribute substantially all of its daily net investment
income on an annual basis. Dividends from net short-term or net long-term
capital gains, if any, will be paid at least once each year. The Fund may,
however, determine either to distribute or to retain all or part of any net
long-term capital gains in any year for reinvestment. Any dividends or
distributions declared in the last quarter of any calendar year which are
paid in the following calendar year prior to February 1 will be deemed
received by the shareholder in the prior calendar year. Shareholders may
instruct the Transfer Agent (in writing) to have their dividends paid out
monthly in cash. Processing of dividend checks begins immediately follow-
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<PAGE>
ing the monthly payment date. Shareholders who have requested to receive
dividends in cash will normally be sent their monthly dividend check during
the first ten days of the following month.
TAXES. Because the Fund intends to distribute substantially all of its net
investment income and net capital gains, if any, to shareholders, and intends
to otherwise comply with all the provisions of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), to qualify as a regulated
investment company ("RIC"), it is not expected that the Fund will be required
to pay any federal income tax.
The Fund intends to qualify to pay "exempt-interest dividends" to its
shareholders by maintaining, as of the close of each quarter of its taxable
year, at least 50% of the value of its total assets in tax-exempt securities.
If the fund qualifies as a RIC and satisfies such requirement, dividends from
net investment income to shareholders, whether taken in cash or reinvested in
additional Fund shares, will be excludable from gross income for federal
income tax purposes to the extent net interest income is represented by
interest on tax-exempt securities. Exempt-interest dividends are included,
however, in determining what portion, if any, of a person's Social Security
benefits are subject to federal income tax.
The Code subjects interest received on certain otherwise tax-exempt
securities to an alternative minimum tax. This alternative minimum tax
applies to interest received on "private activity bonds" (in general, bonds
that benefit non-governmental entities) issued after August 7, 1986 which,
although tax-exempt, are used for purposes other than those generally
performed by governmental units (e.g., bonds used for commercial or housing
purposes). Income received on such bonds is classified as a "tax preference
item," under the alternative minimum tax, for both individual and corporate
investors. There is no percentage limitation with respect to the Fund's
investments in such "private activity bonds," with the result that a portion
of the exempt-interest dividends paid by the Fund may be an item of tax
preference to shareholders subject to the alternative minimum tax. In
addition, certain corporations which are subject to the alternative minimum
tax may have to include a portion of exempt-interest dividends in calculating
their alternative minimum taxable income in situations where the "adjusted
current earnings" of the corporation exceeds its alternative minimum taxable
income.
The Fund will mail to shareholders a statement indicating the percentage
of the dividend distributions for each taxable year which constitutes
exempt-interest dividends and the percentage, if any, that is taxable, and
the percentage, if any, of the exempt-interest dividends which constitutes an
item of tax preference.
Shareholders will normally be subject to federal personal income tax on
market discount on certain taxable and tax-exempt fixed-income securities,
dividends paid from interest income derived from taxable securities and on
distributions of net capital gains. For federal income tax purposes,
distributions of long-term capital gains, if any, are taxable to shareholders
as long-term capital gains, regardless of how long a shareholder has held the
Fund's shares and regardless of whether the distribution is received in
additional shares or cash. To avoid being subject to a 31% backup withholding
tax on taxable dividends and capital gains distributions and the proceeds of
redemptions and repurchases, shareholders' taxpayer identification numbers
must be furnished and certified as to accuracy. Interest on indebtedness
incurred by shareholders or related parties to purchase or carry shares of an
investment company paying exempt-interest dividends, such as the Fund, will
not be deductible by the investor for federal income tax purposes.
Under the Revenue Reconciliation Act of 1993, all or a portion of the
Fund's gain from the sale or redemption of tax-exempt obligations purchased
at a market discount after April 30, 1993 will be treated as ordinary income
rather than capital gain. This rule may increase the amount of ordinary
income dividends received by shareholders.
The foregoing relates to federal income taxation as in effect as of the
date of this Prospectus. Distributions from investment income and capital
gains, including exempt-interest dividends, may be subject to state franchise
taxes if received by a corporation doing business in various states, and to
state and local taxes. Shareholders should consult their tax advisers as to
the applicability of the above to their own tax situation.
PERFORMANCE INFORMATION
- -----------------------------------------------------------------------------
From time to time the Fund may quote its "yield" and/or its "total return"
in advertisements and sales literature. Both the yield and the total return
of the Fund are based on historical earnings and are not intended to indicate
future performance. The yield of the Fund is computed by dividing the Fund's
net investment income over a 30-day period by an average value (using the
average number of shares entitled to receive dividends and the
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maximum offering price per share at the end of the period), all in accordance
with applicable regulatory requirements. Such amount is compounded for six
months and then annualized for a twelve-month period to derive the Fund's
yield. The Fund may also quote tax-equivalent yield, which is calculated by
determining the pre-tax yield which, after being taxed at a stated rate,
would be equivalent to the yield determined as described above.
The "average annual total return" of the Fund refers to a figure
reflecting the average annualized percentage increase (or decrease) in the
value of an initial investment of $1,000 over periods of one, five and ten
years, as well as the life of the Fund if less than any of the foregoing.
Average annual total return reflects all income earned by the Fund, any
appreciation or depreciation of the Fund's assets and all expenses incurred
by the Fund for the stated periods. It also assumes reinvestment of all
dividends and distributions paid by the Fund.
In addition to the foregoing, the Fund may advertise its total return over
different periods of time by means of aggregate, average, year-by-year or
other types of total return figures. The Fund may also advertise the growth
of hypothetical investments of $10,000, $50,000 and $100,000 in shares of the
Fund. The Fund from time to time may also advertise its performance relative
to certain performance rankings (such as Lipper Analytical Services Inc.) and
indices compiled by independent organizations (such as the Lehman Brothers
Municipal Bond Index and Sub-indices).
ADDITIONAL INFORMATION
- -----------------------------------------------------------------------------
VOTING RIGHTS. All shares of beneficial interest of the Fund are of $0.01 par
value and are equal as to earnings, assets and voting privileges.
The Fund is not required to hold Annual Meetings of Shareholders and, in
ordinary circumstances, the Fund does not intend to hold such meetings.
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for obligations
of the Fund. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the Fund, requires that
Fund documents include such disclaimer and provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held
personally liable for the obligations of the Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations. Given the above limitations on shareholder personal liability
and the nature of the Fund's assets and operations, the possibility of the
Fund being unable to meet its obligations is remote and, in the opinion of
Massachusetts counsel to the Fund, the risk to Fund shareholders of personal
liability is remote.
CODE OF ETHICS. Directors, officers and employees of MSDW Advisors, MSDW
Services Inc. and MSDW Distributors are subject to a strict Code of Ethics
adopted by those companies. The Code of Ethics is intended to ensure that the
interests of shareholders and other clients are placed ahead of any personal
interest, that no undue personal benefit is obtained from a person's
employment activities and that actual and potential conflicts of interest are
avoided. To achieve these goals and comply with regulatory requirements, the
Code of Ethics requires, among other things, that personal securities
transactions by employees of the companies be subject to an advance clearance
process to monitor that no Morgan Stanley Dean Witter Fund is engaged at the
same time in a purchase or sale of the same security. The Code of Ethics bans
the purchase of securities in an initial public offering, and also prohibits
engaging in futures and options transactions and profiting on short-term
trading (that is, a purchase within 60 days of a sale or a sale within 60
days of a purchase) of a security. In addition, investment personnel may not
purchase or sell a security for their personal account within 30 days before
or after any transaction in any Morgan Stanley Dean Witter Fund managed by
them. Any violations of the Code of Ethics are subject to sanctions,
including reprimand, demotion or suspension or termination of employment. The
Code of Ethics comports with regulatory requirements and the recommendations
in the 1994 report by the Investment Company Institute Advisory Group on
Personal Investing.
MASTER/FEEDER CONVERSION. The Fund reserves the right to seek to achieve its
investment objective by investing all of its investable assets in a
diversified, open-end management investment company having the same
investment objective and policies and substantially the same investment
restrictions as those applicable to the Fund.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund should be directed to
the Fund at the telephone numbers or addresses set forth on the front cover
of this Prospectus.
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MORGAN STANLEY DEAN WITTER
LIMITED TERM MUNICIPAL TRUST
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Wayne E. Hedien
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Barry Fink
Vice President, Secretary and General Counsel
Katherine H. Stromberg
Vice President
Thomas F. Caloia
Treasurer
CUSTODIAN
The Bank of New York
90 Washington Street
New York, New York 10286
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center
Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
