<PAGE>
MORGAN STANLEY DEAN WITTER LIMITED TERM MUNICIPAL TRUST Two World Trade Center,
LETTER TO THE SHAREHOLDERS September 30, 1998 New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the semiannual report on the operations of Morgan
Stanley Dean Witter Limited Term Municipal Trust for the six-month period ended
September 30, 1998.
Since our last report six months ago, the securities markets continued to be
impacted by global financial developments. International financial turmoil led
to a flight-to-quality rally for U.S. Treasury bonds. Yields on Treasury bonds
fell to record lows. Two recent events -- the collapse of Russia's currency and
a coordinated bailout of a prominent "hedge" fund -- highlighted the ongoing
difficulties.
The deflationary impact of the world financial crisis had begun to temper U.S.
economic growth prior to the summer's tumultuous market activity. Lower prices
for oil and other commodities, cheaper imports and improved productivity offset
the potential inflationary impact of high employment conditions. With inflation
held in check, the Federal Reserve was able to provide liquidity by lowering
short-term interest rates. In two separate moves since the end of September,
the Federal Reserve Open Market Committee cut the federal-funds rate 50 basis
points from 5.50 percent to 5.00 percent.
TYPE OF REPORT
--------------
Semi-annual
BOND YIELDS 1994-1998
Date AAA Ins Tsy % Relationship
- ---- ------- --- --------------
12/31/93 4.58% 5.79% 79.10%
01/31/94 4.46 5.64 79.08%
02/28/94 4.75 6.13 77.49%
03/31/94 5.42 6.74 80.42%
04/29/94 5.54 7.04 78.69%
05/31/94 5.44 7.15 76.08%
06/30/94 5.51 7.32 75.27%
07/29/94 5.36 7.11 75.39%
08/31/94 5.39 7.17 75.17%
09/30/94 5.60 7.60 73.68%
10/31/94 5.79 7.81 74.14%
11/30/94 6.07 7.91 76.74%
12/30/94 5.92 7.82 75.70%
01/31/95 5.73 7.58 75.59%
02/28/95 5.42 7.20 75.28%
03/31/95 5.34 7.20 74.17%
04/28/95 5.37 7.05 76.17%
05/31/95 5.06 6.28 80.57%
06/30/95 5.17 6.20 83.39%
07/31/95 5.06 6.43 78.69%
08/31/95 4.96 6.28 78.98%
09/29/95 4.90 6.18 79.29%
10/31/95 4.83 6.02 80.23%
11/30/95 4.75 5.74 82.75%
12/29/95 4.74 5.57 85.10%
01/31/96 4.69 5.58 84.05%
02/29/96 4.71 6.10 77.21%
03/29/96 5.02 6.33 79.30%
04/30/96 5.11 6.67 76.61%
05/31/96 5.24 6.85 76.50%
06/28/96 5.21 6.71 77.65%
07/31/96 5.16 6.79 75.99%
08/30/96 5.17 6.94 74.50%
09/30/96 5.08 6.70 75.82%
10/31/96 5.00 6.34 78.86%
11/29/96 4.79 6.04 79.30%
12/31/96 4.88 6.42 76.01%
01/31/97 5.04 6.49 77.66%
02/28/97 4.96 6.55 75.73%
03/31/97 5.17 6.90 74.93%
04/30/97 5.16 6.72 76.79%
05/30/97 5.01 6.66 75.23%
06/30/97 4.92 6.50 75.69%
07/30/97 4.61 6.01 76.71%
08/31/97 4.83 6.34 76.18%
09/30/97 4.70 6.10 77.05%
10/31/97 4.64 5.83 79.59%
11/30/97 4.69 5.87 79.90%
12/31/97 4.52 5.74 78.75%
01/31/98 4.42 5.51 80.22%
02/28/98 4.45 5.62 79.18%
03/31/98 4.55 5.65 80.53%
04/30/98 4.65 5.67 82.01%
05/29/98 4.55 5.55 81.98%
06/30/98 4.50 5.45 82.57%
07/31/98 4.54 5.49 82.70%
08/31/98 4.39 4.98 88.15%
09/30/98 4.25 4.42 96.15%
10-Year U.S. Treasury Yields
10-Year Municipal Yields*
Municipal Yields as a Percentage of U.S. Treasury Yields
Source: Bloomberg L.P.
*Double "A"- rated General Obligation Bonds
<PAGE>
MORGAN STANLEY DEAN WITTER LIMITED TERM MUNICIPAL TRUST
LETTER TO THE SHAREHOLDERS September 30, 1998, continued
MUNICIPAL MARKET CONDITIONS
Municipal bond yields followed the downward trend in Treasury yields, although
at a more moderate pace. At the end of September intermediate-term yields, as
measured by 10-year double "A"-rated general obligation bonds, stood at 4.25
percent, their lowest level in 25 years. Over the past 12 months intermediate
yields declined 45 basis points from 4.70 percent. In contrast, the 10-year
U.S. Treasury yield fell 170 basis points.
As municipals lagged the rally in Treasuries, the ratio of intermediate-term
municipal yields to comparable maturity Treasury yields rose sharply from 81
percent to 96 percent. (A rising ratio means that municipals have
underperformed Treasuries and have become more attractive on a relative basis.)
The rise in this ratio is similar to the jump witnessed in 1986 when radical
tax-reform proposals threatened the favorable tax advantage of municipal bonds.
The overall decline in interest rates led to a substantial increase in
new-issue municipal volume. Municipal issuance is on a pace to challenge 1993's
record of $292 billion. Year to date, total municipal volume of $214 billion is
up 37 percent. Half the underwritings have been enhanced with bond insurance.
Refundings represent nearly one-third of total new issues.
PERFORMANCE
Morgan Stanley Dean Witter Limited Term Municipal Trust's total return for the
six-month period ended September 30, 1998, was 3.47 percent. Total return was
comprised of tax-free dividends totaling $0.20 per share and a $0.15 increase
in net asset value from $10.26 to $10.41 per share.
PORTFOLIO STRUCTURE
As of September 30, 1998, intermediate-term municipal bonds represented 87
percent of the Fund's net assets. The Fund's short-term investment position was
12 percent of net assets. The portfolio was diversified among 13 specific
municipal sectors and 36 separate issuers. Average maturity was 5 years and
duration was 4 years. (Duration is a measure of a bond portfolio's sensitivity
to interest rate movements.) Bonds subject to the alternative minimum tax (AMT)
accounted for 14 percent of net assets. The portfolio maintained high quality
with more than half of the bonds rated double or triple "A," as measured by
Standard & Poor's Corp. or Moody's Investors Service, Inc. At the end of
September, the Fund's net assets were in excess of $59 million.
2
<PAGE>
MORGAN STANLEY DEAN WITTER LIMITED TERM MUNICIPAL TRUST
LETTER TO THE SHAREHOLDERS September 30, 1998, continued
CREDIT RATINGS AS OF SEPTEMBER 30, 1998
(% OF TOTAL BOND PORTFOLIO)
- --------------------------------------------------------------------------------
Aaa/AAA 28%
Aa/AA 31%
A/A 31%
Baa/BBB 6%
N/R 4%
----
100%
AS MEASURED BY MOODY'S INVESTORS SERVICE, INC.
OR STANDARD & POOR'S CORP.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
LARGEST SECTORS AS OF SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
General Obligation 9%
Education 11%
Electric 5%
Hospital 9%
IDR/PCR 5%
Mortgage 8%
Public Facilities --
Nursing & Health --
Resource Recovery --
Retirement & Life Care --
Student Loan 7%
Transportation 11%
Water & Sewer 9%
Tax Allocation --
Refunded --
All Other 26%
----
Total 100%
*INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
LOOKING AHEAD
World economic conditions are expected to keep inflationary pressures under
control and have contributed to lower interest rates. The fixed-income markets
have also begun to anticipate the possibility of additional interest rate cuts
by the Fed. With the municipal relationship to Treasuries as strong as it has
been in 10 years, the outlook for municipal bonds continues to be favorable.
We appreciate your ongoing support of Morgan Stanley Dean Witter Limited Term
Municipal Trust and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo
- --------------------------
CHARLES A. FIUMEFREDDO
Chairman of the Board
3
<PAGE>
MORGAN STANLEY DEAN WITTER LIMITED TERM MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS September 30, 1998 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- -------- ---------- -------------
<S> <C> <C> <C> <C>
TAX-EXEMPT MUNICIPAL BONDS (87.1%)
General Obligation (8.9%)
$ 1,000 Wilmington, Delaware, Refg Ser 1993 B (FGIC) ...................................... 4.60% 07/01/04 $ 1,039,370
1,000 Honolulu, Hawaii, Refg Ser 1993 B ................................................. 5.00 10/01/03 1,050,020
1,000 Rosemont, Illinois, Ser 1993 B .................................................... 5.30 12/01/04 1,070,960
1,000 Massachusetts, Refg Ser 1993 C .................................................... 4.80 08/01/03 1,046,000
1,000 Massillon City School District, Ohio, Refg Ser 1994 (AMBAC) ....................... 4.70 12/01/05 1,048,930
--------- -----------
5,000 5,255,280
--------- -----------
Educational Facilities Revenue (10.7%)
1,000 University of Delaware, Ser 1993 .................................................. 4.90 11/01/02 1,041,620
1,000 Massachusetts Health & Educational Facilities Authority, Boston College Ser K ..... 4.80 06/01/04 1,048,440
2,000 University of Minnesota, Ser 1993 A ............................................... 4.80 08/15/03 2,086,120
2,000 New York State Dormitory Authority, State University Ser 1993 B ................... 5.25 05/15/05 2,140,540
--------- -----------
6,000 6,316,720
--------- -----------
Electric Revenue (5.3%)
1,000 Salt River Project Agricultural Improvement & Power District, Arizona,
Refg Ser 1993 B ................................................................. 4.75 01/01/03 1,038,120
2,000 San Antonio, Texas, Electric & Gas Refg Ser 1994 .................................. 4.70 02/01/05 2,083,260
--------- -----------
3,000 3,121,380
--------- -----------
Hospital Revenue (8.8%)
1,000 California Statewide Communities Development Authority, Cedars-Sinai Medical
Center Ser 1993 ................................................................. 4.70 11/01/03 1,045,950
1,000 Michigan Hospital Finance Authority, McLaren Obligated Group Ser 1993 A ........... 5.00 10/15/04 1,048,810
1,000 Murray, Utah, IHC Hospitals Inc Refg Ser 1993 (AMBAC) ............................. 5.00 05/15/04 1,055,030
1,000 Fairfax County Industrial Development Authority, Virginia, Inova Health System
Foundation Refg Ser 1993 A ...................................................... 4.70 08/15/04 1,041,070
1,000 Wisconsin Health & Educational Facilities Authority, Hospital Sisters Services
---------
Ser 1993 (MBIA) ................................................................... 5.00 06/01/03 1,043,890
5,000 -----------
--------- 5,234,750
Industrial Development/Pollution Control Revenue (5.2%) -----------
1,000 Massachusetts Industrial Finance Agency, Eastern Edison Co Refg Ser 1993 .......... 5.875 08/01/08 1,047,410
2,000 Greenwood, Wisconsin, Land O'Lakes Inc (AMT) ...................................... 5.50 09/01/03 2,059,320
--------- -----------
3,000 3,106,730
--------- -----------
Mortgage Revenue -- Multi-Family (3.7%)
2,130 Wisconsin Housing & Economic Development Authority, Ser 1993 B (AMT) .............. 5.10 11/01/03 2,191,727
--------- -----------
Mortgage Revenue -- Single Family (3.5%)
2,000 Connecticut Housing Finance Authority, 1993 Subser F-1 ............................ 4.90 05/15/04 2,064,940
--------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
MORGAN STANLEY DEAN WITTER LIMITED TERM MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS September 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- -------- ---------- --------------
<S> <C> <C> <C> <C>
Public Facilities Revenue (4.4%)
$ 1,000 Regional Convention & Sports Complex Authority, Missouri, Refg Ser A 1993 ..... 4.75% 08/15/04 $ 1,035,170
1,500 Ohio Building Authority, Correctional Refg 1994 Ser A ......................... 4.65 10/01/04 1,558,875
--------- -----------
2,500 2,594,045
--------- -----------
Resource Recovery Revenue (3.5%)
2,000 Northeast Maryland Waste Disposal Authority, Montgomery County
---------
Ser 1993 A (AMT) .............................................................. 5.50 07/01/01 2,083,700
-----------
Student Loan Revenue (7.0%)
2,000 Montana Higher Education Student Assistance Corporation, Senior
Ser 1993 B (AMT) .............................................................. 5.10 12/01/01 2,067,780
2,000 South Carolina Education Assistance Authority, Ser 1993 A-1 (AMT) ............. 5.00 09/01/03 2,075,780
--------- -----------
4,000 4,143,560
--------- -----------
Tax Allocation Revenue (3.2%)
1,815 Pleasanton Joint Powers Financing Authority, California, Reassessment
---------
Ser 1993 A .................................................................... 5.60 09/02/00 1,875,258
-----------
Transportation Facilities Revenue (10.6%)
1,000 Delaware River & Bay Authority, Delaware & New Jersey, Ser 1993+ .............. 4.50 01/01/04 1,029,150
2,000 Washington Metropolitan Area Transit Authority, District of Columbia,
Maryland and Virginia, Refg Ser 1993 (FGIC)++ ............................... 4.90 01/01/05 2,104,240
1,000 Chicago, Illinois, Chicago-O'Hare Int'l Airport Refg Ser 1993 A ............... 4.80 01/01/05 1,037,090
2,000 Harris County, Texas, Toll Road Refg Ser 1994 (AMBAC) ......................... 4.85 08/15/05 2,109,820
--------- -----------
6,000 6,280,300
--------- -----------
Water & Sewer Revenue (8.8%)
1,000 Atlanta, Georgia, Water & Sewer Ser 1993 ...................................... 4.50 01/01/04 1,031,070
1,000 Massachusetts Water Resources Authority, Ser 1993 C ........................... 5.25 12/01/06 1,079,810
1,000 New York City Municipal Water Finance Authority, New York, Ser 1994 B ......... 5.125 06/15/04 1,059,990
1,000 Pittsburgh Water & Sewer Authority, Pennsylvania, Refg Ser 1993 A (FGIC) ...... 4.60 09/01/03 1,033,290
1,000 Southeastern Public Service Authority, Virginia, Regional Solid Waste
---------
Refg Ser 1993 A (MBIA) ...................................................... 4.70 07/01/04 1,038,720
-----------
5,000 5,242,880
--------- -----------
Other Revenue (3.5%)
2,000 Pennsylvania Intergovernmental Cooperation Authority, Special Tax
---------
Ser 1993 (FGIC) ............................................................. 5.05 06/15/04 2,097,060
-----------
49,445
---------
TOTAL TAX-EXEMPT MUNICIPAL BONDS
(Identified Cost $49,248,849) ................................................................... 51,608,330
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
MORGAN STANLEY DEAN WITTER LIMITED TERM MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS September 30, 1998 (unaudited) continued
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS (11.6%)
$ 2,600 Hapeville Development Authority, Georgia, Hapeville Hotel Ltd
Ser 1985 (Demand 10/01/98) ............................................. 4.10*% 11/01/15 $ 2,600,000
2,200 East Baton Rouge Parish, Louisiana, Exxon Corp Ser 1989
(Demand 10/01/98) ...................................................... 4.10* 11/01/19 2,200,000
2,100 Metropolitan Nashville Airport Authority, Tennessee, American Airlines Inc
--------
Refg Ser 1995 A (Demand 10/01/98) ...................................... 4.10* 10/01/12 2,100,000
-----------
6,900 TOTAL SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATIONS
--------
(Identified Cost $6,900,000) ..................................................................... 6,900,000
-----------
$ 56,345
=========
TOTAL INVESTMENTS
(Identified Cost $56,148,849) (a) ................................................... 98.7% 58,508,330
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES ...................................... 1.3 762,776
----- -----------
NET ASSETS .......................................................................... 100.0% $59,271,106
===== ===========
</TABLE>
- ---------------
AMT Alternative Minimum Tax.
+ Joint exemption in Delaware and New Jersey.
++ Joint exemption in District of Columbia, Maryland and Virginia.
* Current coupon of variable rate demand obligation.
(a) The aggregate cost for federal income tax purposes approximates identified
cost. The aggregate unrealized appreciation is $2,359,481.
Bond Insurance:
- --------------
AMBAC AMBAC Indemnity Corporation.
FGIC Financial Guaranty Insurance Company.
MBIA Municipal Bond Investors Assurance Corporation.
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
MORGAN STANLEY DEAN WITTER LIMITED TERM MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS September 30, 1998 (unaudited) continued
- --------------------------------------------------------------------------------
GEOGRAPHIC SUMMARY OF INVESTMENTS
Based on Market Value as a Percent of Net Assets
September 30, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Arizona ...................... 1.8% Massachusetts ................ 7.1% Tennessee .................... 3.5%
California ................... 4.9 Michigan ..................... 1.8 Texas ........................ 7.1
Connecticut .................. 3.5 Minnesota .................... 3.5 Utah ......................... 1.8
Delaware ..................... 5.2 Missouri ..................... 1.7 Virginia ..................... 7.0
District of Columbia ......... 3.6 Montana ...................... 3.5 Wisconsin .................... 8.9
Georgia ...................... 6.1 New Jersey ................... 1.7 Joint Exemptions* ............ (8.8)
Hawaii ....................... 1.8 New York ..................... 5.4 ----
Illinois ..................... 3.6 Ohio ......................... 4.4 Total ........................ 98.7%
Louisiana .................... 3.7 Pennsylvania ................. 5.3 ====
Maryland ..................... 7.1 South Carolina ............... 3.5
</TABLE>
- ---------------
* Joint exemptions have been included in each geographic location.
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
MORGAN STANLEY DEAN WITTER LIMITED TERM MUNICIPAL TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998 (unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
(identified cost $56,148,849)....................................... $58,508,330
Cash ................................................................. 87,464
Receivable for:
Interest .......................................................... 661,282
Shares of beneficial interest sold ................................ 129,489
Prepaid expenses and other assets .................................... 48,286
-----------
TOTAL ASSETS ...................................................... 59,434,851
-----------
LIABILITIES:
Payable for:
Shares of beneficial interest repurchased ......................... 74,581
Investment management fee ......................................... 23,958
Dividends to shareholders ......................................... 12,406
Accrued expenses ..................................................... 52,800
-----------
TOTAL LIABILITIES ................................................. 163,745
-----------
NET ASSETS ........................................................ $59,271,106
===========
COMPOSITION OF NET ASSETS:
Paid-in-capital ...................................................... $65,700,373
Net unrealized appreciation .......................................... 2,359,481
Accumulated net realized loss ........................................ (8,788,748)
-----------
NET ASSETS ........................................................ $59,271,106
===========
NET ASSET VALUE PER SHARE,
5,694,090 shares outstanding (unlimited shares authorized of $.01 par
value) ............................................................. $ 10.41
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
MORGAN STANLEY DEAN WITTER LIMITED TERM MUNICIPAL TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF OPERATIONS
For the six months ended September 30, 1998 (unaudited)
<TABLE>
<S> <C>
NET INVESTMENT INCOME:
INTEREST INCOME ............................... $1,316,991
----------
EXPENSES
Investment management fee ..................... 140,163
Professional fees ............................. 22,144
Shareholder reports and notices ............... 16,806
Registration fees ............................. 16,557
Transfer agent fees and expenses .............. 15,777
Trustees' fees and expenses ................... 11,903
Organizational expenses ....................... 7,198
Custodian fees ................................ 1,298
Other ......................................... 5,069
----------
TOTAL EXPENSES ............................. 236,915
Less: expense offset .......................... (1,295)
----------
NET EXPENSES ............................... 235,620
----------
NET INVESTMENT INCOME ...................... 1,081,371
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ............................. 600
Net change in unrealized appreciation ......... 832,989
----------
NET GAIN ................................... 833,589
----------
NET INCREASE .................................. $1,914,960
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
MORGAN STANLEY DEAN WITTER LIMITED TERM MUNICIPAL TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, 1998 MARCH 31, 1998
-------------------- -----------------
<S> <C> <C>
(unaudited)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .................................... $ 1,081,371 $ 2,211,157
Net realized gain ........................................ 600 8,679
Net change in unrealized appreciation/depreciation ....... 832,989 1,901,212
----------- ------------
NET INCREASE .......................................... 1,914,960 4,121,048
Dividends from net investment income ..................... (1,081,371) (2,211,157)
Net increase (decrease) from transactions in shares of
beneficial interest .................................... 937,453 (5,507,667)
----------- ------------
NET INCREASE (DECREASE) ............................... 1,771,042 (3,597,776)
NET ASSETS:
Beginning of period ...................................... 57,500,064 61,097,840
----------- ------------
END OF PERIOD ......................................... $59,271,106 $ 57,500,064
=========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
MORGAN STANLEY DEAN WITTER LIMITED TERM MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1998 (unaudited)
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Dean Witter Limited Term Municipal Trust (the "Fund"), formerly
Dean Witter Limited Term Municipal Trust, is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Fund's investment objective is to provide a high level
of current income which is exempt from federal income tax, consistent with the
preservation of capital and prescribed standards of quality and maturity. The
Fund seeks to achieve this objective by investing primarily in intermediate
term, investment grade municipal securities. The Fund was organized as a
Massachusetts business trust on February 25, 1993 and commenced operations on
July 12, 1993.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures. Actual results could differ
from those estimates.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS -- Portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service has
informed the Fund that in valuing the portfolio securities, it uses both a
computerized matrix of tax-exempt securities and evaluations by its staff, in
each case based on information concerning market transactions and quotations
from dealers which reflect the bid side of the market each day. The portfolio
securities are thus valued by reference to a combination of transactions and
quotations for the same or other securities believed to be comparable in
quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. Short-term debt
securities having a maturity date of more than sixty days at time of purchase
are valued on a mark-to-market basis until sixty days prior to maturity and
thereafter at amortized cost based on their value on the 61st day. Short-term
debt securities having a maturity date of sixty days or less at the time of
purchase are valued at amortized cost.
B. ACCOUNTING FOR INVESTMENTS -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable and nontaxable income to its
shareholders. Accordingly, no federal income tax provision is required.
11
<PAGE>
MORGAN STANLEY DEAN WITTER LIMITED TERM MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1998 (unaudited) continued
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- The Fund records dividends
and distributions to its shareholders on the record date. The amount of
dividends and distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. To the
extent these differences are permanent in nature, such amounts are reclassified
within the capital accounts based on their federal tax-basis treatment;
temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions of
paid-in-capital.
E. ORGANIZATIONAL EXPENSES -- Morgan Stanley Dean Witter Advisors Inc. (the
"Investment Manager"), formerly Dean Witter InterCapital Inc., paid the
organizational expenses of the Fund in the amount of $141,529 which were
reimbursed exclusive of $12,651 which was absorbed by the Investment Manager.
Such expenses have been deferred and were fully amortized as of July 11, 1998.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement, the Fund pays the Investment
Manager a management fee, accrued daily and payable monthly, by applying the
annual rate of 0.50% to the Fund's net assets determined as of the close of
each business day.
Under the terms of the Agreement, in addition to managing the Fund's
investments, the Investment Manager maintains certain of the Fund's books and
records and furnishes, at its own expense, office space, facilities, equipment,
clerical, bookkeeping and certain legal services and pays the salaries of all
personnel, including officers of the Fund who are employees of the Investment
Manager. The Investment Manager also bears the cost of telephone services,
heat, light, power and other utilities provided to the Fund.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The proceeds from calls of portfolio securities, excluding short-term
investments, for the six months ended September 30, 1998 aggregated $20,600.
12
<PAGE>
MORGAN STANLEY DEAN WITTER LIMITED TERM MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1998 (unaudited) continued
Morgan Stanley Dean Witter Trust FSB, an affiliate of the Investment Manager,
is the Fund's transfer agent. At September 30, 1998, the Fund had transfer
agent fees and expenses payable of approximately $1,400.
The Fund has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Fund who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the six months ended September 30, 1998
included in Trustees' fees and expenses in the Statement of Operations amounted
to $4,971. At September 30, 1998, the Fund had an accrued pension liability of
$29,626 which is included in accrued expenses in the Statement of Assets and
Liabilities.
4. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, 1998 MARCH 31, 1998
---------------------------------- ----------------------------------
(unaudited)
SHARES AMOUNT SHARES AMOUNT
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Sold .............................. 1,099,693 $ 11,331,015 2,295,609 $ 23,451,451
Reinvestment of dividends ......... 83,399 857,511 170,238 1,728,340
--------- ------------- --------- -------------
1,183,092 12,188,526 2,465,847 25,179,791
Repurchased ....................... (1,094,491) (11,251,073) (3,025,601) (30,687,458)
---------- ------------- ---------- -------------
Net increase (decrease) ........... 88,601 $ 937,453 (559,754) $ (5,507,667)
========== ============= ========== =============
</TABLE>
5. FEDERAL INCOME TAX STATUS
At March 31, 1998, the Fund had net capital loss carryover of approximately
$8,789,000 which may be used to offset future capital gains to the extent
provided by regulations, which is available through March 31 of the following
years:
<TABLE>
<CAPTION>
AMOUNT IN THOUSANDS
- -----------------------------
2003 2004 2005
- ----------- --------- -------
<S> <C> <C>
$ 4,621 $3,941 $227
======== ====== ====
</TABLE>
13
<PAGE>
MORGAN STANLEY DEAN WITTER LIMITED TERM MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR ENDED MARCH 31,
MONTHS ENDED -----------------------------------------------------------------
SEPTEMBER 30, 1998 1998 1997 1996 1995
---------------------- -------------- ------------------ ------------------ ------------
(unaudited) <C> <C> <C> <C>
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 10.26 $ 9.91 $ 9.95 $ 9.56 $ 9.61
------------ --------- ----------- ----------- ---------
Net investment income .................... 0.20 0.40 0.40 0.41 0.42
Net realized and unrealized gain (loss) .. 0.15 0.35 (0.04) 0.39 (0.05)
------------ --------- ----------- ----------- ----------
Total from investment operations ......... 0.35 0.75 0.36 0.80 0.37
Less dividends from net investment income (0.20) (0.40) (0.40) (0.41) (0.42)
------------ ---------- ----------- ----------- ----------
Net asset value, end of period ........... $ 10.41 $ 10.26 $ 9.91 $ 9.95 $ 9.56
============ ========== =========== =========== ==========
TOTAL INVESTMENT RETURN+ ................. 3.47%(1) 7.70% 3.65% 8.42% 4.01%
RATIOS TO AVERAGE NET ASSETS:
Expenses ................................. 0.85%(2)(4) 0.83% 0.88%(4) 0.87%(4) 0.76%
Net investment income .................... 3.86%(2) 3.92% 3.99% 4.09% 4.41%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands .. $ 59,271 $57,500 $61,098 $72,766 $85,499
Portfolio turnover rate .................. -- -- -- -- 2%
<CAPTION>
FOR THE PERIOD
JULY 12, 1993*
THROUGH
MARCH 31, 1994
---------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............. $ 10.00
-------------
Net investment income ............................ 0.29
Net realized and unrealized gain (loss) .......... (0.39)
-------------
Total from investment operations ................. (0.10)
Less dividends from net investment income ........ (0.29)
-------------
Net asset value, end of period ................... $ 9.61
=============
TOTAL INVESTMENT RETURN+ ......................... (1.11)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses ......................................... 0.31 %(2)(3)
Net investment income ............................ 3.92 %(2)(3)
SUPPLEMENTAL DATA :
Net assets, end of period, in thousands .......... $170,589
Portfolio turnover rate .......................... 6 %(1)
</TABLE>
- -------------
* 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%.
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
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
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT MANAGER
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, New York 10048
This financial statements included herein have been taken from the records
of the Fund without examination by the independent accountants and
accordingly they do not express an opinion thereon.
This report is submitted for the general information of shareholders
of the Fund. For more detailed information about the Fund, its officers
and trustees, fees, expenses and other pertinent information, please see
the prospectus of the Fund.
This report is not authorized for distribution to prospective investors
in the Fund unless preceded or accompanied by an effective prospectus.
MORGAN STANLEY
DEAN WITTER
LIMITED TERM
MUNICIPAL TRUST
SEMIANNUAL REPORT
SEPTEMBER 30, 1998
