DEAN WITTER NATIONAL MUNICIPAL TRUST
LETTER TO THE SHAREHOLDERS September 30, 1996
Two World Trade Center, New York, New York 10048
DEAR SHAREHOLDER:
We are pleased to present the annual report on the operations of Dean Witter
National Municipal Trust for the fiscal year ended September 30, 1996.
Stronger economic growth and the potential threat of inflation shifted the tone
of the fixed-income markets from bullish to bearish in early 1996. This change
in market psychology was confirmed in March, when a surprisingly large increase
in payroll employment was reported. Other indicators of economic activity and
rising commodity prices added to this concern. As a result, investors
anticipated that the Federal Reserve Board might reverse its pattern of
reductions in the federal-funds rate which began in 1995. The bond market
reacted to these expectations by pushing long-term yields higher. More than
three-quarters of the rise was attributed to market weakness on the days that
strong monthly employment figures were reported.
MUNICIPAL MARKET CONDITIONS
Between August 1995 and February 1996, 30-year insured revenue bond yields
declined 70 basis points from 6.00 percent to 5.30 percent. Yields subsequently
moved higher, reaching 6.15 percent in April and again in mid-June. By
September yields stood at 5.70 percent, compared to 3.85 percent for 1-year
municipal notes. In September, the yield curve pickup for extending maturities
from 1 to 30 years was 185 basis points.
As the risk diminished that flat-tax proposals would cause a radical change in
the tax code, tax-exempt bonds outperformed U.S. Treasury securities. The ratio
of insured revenue bond yields to 30-year U.S. Treasury yields, which began the
year at 92 percent, declined to 83 percent by the end of September. A declining
ratio means that municipal bond prices were stronger than U.S. Treasury prices.
The municipal market also benefited from steady demand. In addition to regular
maturities and calls for redemption this year, it has been estimated that
investors also face the retirement of more than $60 billion of
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
LETTER TO THE SHAREHOLDERS September 30, 1996, continued
previously refunded debt. On the supply side, new issues increased 19 percent
to $128 billion during the first nine months of 1996. However, as interest
rates rose, underwritings were frequently postponed and the pace of activity
slowed.
PERFORMANCE
GROWTH OF $10,000
LEHMAN BROTHERS
DATE TOTAL MUNICIPAL BOND
INDEX
===================================================================
June 2, 1994 $10,000 $10,000
===================================================================
September 30, 1994 $ 9,954 $10,007
===================================================================
September 30, 1995 $11,002 $11,126
===================================================================
September 30, 1996 $11,556 $11,798
===================================================================
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR LIFE OF FUND
==================================
5.94 (1) 6.80 (1)
---------------------------
2.94 (2) 6.40 (2)
==================================
==================================
_____Fund ____Lehman (4)
==================================
Past performance is not predictive of future returns.
(1) Figure shown assumes reinvestment of all distributions and does not
reflect the deduction of any sales charges.
(2) Figure shown assumes reinvestment of all distributions and the deduction
of the maximum applicable contingent deferred sales charge (CDSC) (1
year-3%, since inception - 1%). See the Fund's current prospectus for
complete details on fees and sales charges.
(3) Closing value, assuming a complete redemption on September 30, 1996.
(4) The Lehman Brothers Municipal Bond Index tracks the performance of
municipal bonds with maturities of 2 years or greater and a minimum
credit rating of Baa or BBB, as rated by Moody's Investors Service, Inc.
or Standard & Poor's Corp., respectively. The Index does not include any
expenses, fees or charges. The Index is unmanaged and should not be
considered an investment.
The net asset value (NAV) of Dean Witter National Municipal Trust rose from
$10.39 to $10.50 per share during the fiscal year ended September 30, 1996.
Based on this change plus reinvestment of tax-free dividends totaling $0.50 per
share, the Fund's total return was 5.94 percent. The accompanying chart
illustrates the performance of a $10,000 investment in the Fund from inception
(June 2, 1994) through the fiscal year ended September 30, 1996, versus the
performance of similar hypothetical investment in the issues that comprise the
Lehman Brothers Municipal Bond Index. The Index, which does not include any
expenses, fees or charges, is unmanaged and should not be considered an
investment.
PORTFOLIO STRUCTURE
The Fund's short-term investment position at the end of September was 11
percent of net assets. An additional two percent was held in refunded issues
which were secured by U.S. government securities held in escrow to redeem these
issues on their first call dates. The average maturity and call protection of
the Fund's portfolio were 18 years and 8 years, respectively. Throughout the
year high credit quality was maintained with nearly 90 percent of long-term
holdings rated triple or double "A." National Municipal Trust's net assets of
$81.6 million were diversified among 12 long-term sectors and 54 credits.
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
LETTER TO THE SHAREHOLDERS September 30, 1996, continued
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
LOOKING AHEAD
The balance between the supply of new issues and demand created by maturities
is expected to remain positive for the municipal market. Long-term insured
municipal securities currently yield 83 percent to the yield on U.S. Treasury
securities and may be expected to move in tandem with the Treasury market.
Although municipal performance relative to Treasuries has improved, tax-exempts
could again be affected by market uncertainty if new tax reduction proposals
surface.
We appreciate your ongoing support of Dean Witter National 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
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS (92.4%)
General Obligation (21.4%)
North Slope Borough, Alaska,
$ 3,000 Ser 1994 B (FSA) ..................................................... 0.00 % 06/30/05 $ 1,872,480
3,925 Ser 1996 B (MBIA) .................................................... 0.00 06/30/06 2,299,422
1,000 Santa Margarita/Dana Point Authority, California, Impr Dists #3, 3A,
4 & 4A 1994 Ser B Refg (MBIA) ........................................ 5.75 08/01/20 992,220
1,000 Atlanta, Georgia, Public Impr Ser 1994 A ............................... 6.125 12/01/23 1,027,700
1,500 Hawaii, 1995 Ser C J ................................................... 6.25 01/01/15 1,563,570
2,000 Chicago, Illinois, Refg Ser 1995 B (FGIC) .............................. 5.125 01/01/25 1,818,480
1,000 Chicago Park District, Illinois, Ser 1995 .............................. 6.60 11/15/14 1,068,440
1,000 Chelsea, Massachusetts, School Act of 1948 (AMBAC) ..................... 6.50 06/15/12 1,082,430
1,000 Massachusetts, 1994 Ser C (FGIC) ....................................... 6.75 11/01/12 1,099,470
1,500 New York City, New York, 1995 Ser D (MBIA) ............................. 6.20 02/01/07 1,621,140
1,000 Delaware City School District, Ohio, Constr & Impr dtd 08/15/95 (FGIC) .. 5.75 12/01/20 997,320
2,000 Washington, 1994 Ser A ................................................. 5.80 09/01/08 2,055,300
- --------- -----------
19,925 17,497,972
- --------- -----------
Educational Facilities Revenue (5.1%)
1,000 California Educational Facilities Authority, Claremont Colleges Ser 1992 6.375 05/01/22 1,031,730
500 Atlanta Urban Residential Finance Authority, Georgia, Morehouse College
Refg Ser 1995 (MBIA) ................................................. 5.75 12/01/14 505,295
2,000 New Jersey Economic Development Authority, Educational Testing Service
Ser 1995 (MBIA) ...................................................... 6.125 05/15/15 2,073,340
500 New York State Dormitory Authority, City University 1994 3rd Resolution
Ser 1 (AMBAC) ........................................................ 6.30 07/01/24 524,060
- --------- -----------
4,000 4,134,425
- --------- -----------
Electric Revenue (5.3%)
1,500 Puerto Rico Electric Power Authority, Power Ser X ...................... 6.00 07/01/15 1,508,100
1,000 Austin, Texas, Combined Utilities Refg Ser 1994 (FGIC) ................. 6.25 05/15/16 1,052,010
2,000 Intermountain Power Agency, Utah, Refg 1996 Ser D ...................... 5.00 07/01/21 1,786,140
- --------- -----------
4,500 4,346,250
- --------- -----------
Hospital Revenue (13.7%)
1,465 Birmingham - Carraway Special Care Facilities Financing Authority,
Alabama, Carraway Methodist Health Ser 1995-A (Connie Lee) ........... 6.25 08/15/09 1,547,274
500 Rancho Mirage Joint Powers Financing Authority, California, Eisenhower
Memorial Hospital COPs ............................................... 7.00 03/01/22 538,740
2,000 Orange County Health Facilities Authority, Florida, Adventist
Health/Sunbelt Obligated Group Ser 1995 (AMBAC) ...................... 5.25 11/15/20 1,867,780
1,000 Maryland Health & Higher Educational Facilities Authority, Kernan
Hospital Ser 1994 (Connie Lee) ....................................... 6.10 07/01/24 1,009,390
1,300 New Hampshire Higher Educational & Health Facilities Authority,
St Joseph Hospital Ser 1994 (Connie Lee) ............................. 6.35 01/01/07 1,369,368
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 2,000 University of North Carolina, Hospitals at Chapel Hill Ser 1996 ......... 5.25 % 02/15/19 $ 1,874,860
3,000 Jackson, Tennessee, Jackson-Madison County General Hospital
Refg & Impr Ser 1995 (AMBAC) ......................................... 5.625 04/01/15 2,960,970
- --------- -----------
11,265 11,168,382
- --------- -----------
Industrial Development/Pollution Control Revenue (4.5%)
1,500 Hawaii Department of Budget & Finance, Hawaiian Electric Co
Ser 1995 A (AMT) (MBIA) .............................................. 6.60 01/01/25 1,604,775
2,000 New York State Energy Research & Development Authority,
New York State Electric & Gas Corp 1987 Ser A (AMT) (MBIA) ........... 6.15 07/01/26 2,024,880
- --------- -----------
3,500 3,629,655
- --------- -----------
Mortgage Revenue - Multi-Family (1.9%)
500 Honolulu, Hawaii, Waipahu Towers GNMA Collateralized 1995 Ser A (AMT) ... 6.90 06/20/35 527,055
1,000 Massachusetts Housing Finance Agency, Rental 1994 Ser A (AMT)
(AMBAC) ............................................................... 6.65 07/01/19 1,032,440
- --------- -----------
1,500 1,559,495
- --------- -----------
Mortgage Revenue - Single Family (4.8%)
2,000 Alaska Housing Finance Corporation, Governmental 1995 Ser A (MBIA) ..... 5.875 12/01/24 1,982,120
1,000 Tennessee Housing Development Agency, Finance 1994 Ser B (AMT) ......... 6.55 07/01/19 1,025,210
900 Utah Housing Finance Agency, Federally Insured/Guaranteed Loans
1994 Issue E (AMT) ................................................... 6.50 07/01/26 921,411
- --------- -----------
3,900 3,928,741
- --------- -----------
Public Facilities Revenue (3.7%)
North City West School Facilities Financing Authority, California,
1,000 Community Facs Dist #1 Special Tax Ser 1995 B (FSA) .................. 5.75 09/01/15 996,520
2,000 Community Facs Dist #1 Special Tax Ser 1995 B (FSA) .................. 6.00 09/01/19 2,025,380
- --------- -----------
3,000 3,021,900
- --------- -----------
Transportation Facilities Revenue (14.3%)
2,000 Dade County, Florida, Seaport Refg Ser 1996 (MBIA) ..................... 5.125 10/01/16 1,870,580
1,000 Lee County, Florida, Ser 1995 (MBIA) ................................... 5.75 10/01/22 998,660
850 Regional Transportation Authority, Illinois, Ser 1994 A ................ 6.25 06/01/15 890,740
1,000 Kentucky Turnpike Authority, Economic Development Road Revitalization
Refg Ser 1995 (AMBAC) ................................................ 5.625 07/01/15 1,000,300
2,500 Maine Turnpike Authority, Ser 1994 (MBIA) .............................. 6.00 07/01/18 2,549,625
1,000 New York State Thruway, Authority General 1995 Ser C (FGIC) ............ 6.00 01/01/25 1,015,190
1,500 Port Authority of New York & New Jersey, Cons One Hundredth Ser
Second Installment + ................................................. 5.75 12/15/20 1,486,305
2,000 Texas Turnpike Authority, Dallas North Tollway Refg Ser (FGIC) ......... 5.25 01/01/23 1,875,440
- --------- -----------
11,850 11,686,840
- --------- -----------
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Water & Sewer Revenue (11.8%)
$ 1,000 Birmingham Waterworks & Sewer Board, Alabama, Ser 1993-A ............... 6.00 % 01/01/20 $ 1,016,800
1,000 Castaic Lake Water Agency, California, Refg Ser 1994 A COPs (MBIA) ...... 6.00 08/01/18 1,013,240
1,000 Dade County, Florida, Water & Sewer Ser 1995 (FGIC) .................... 5.50 10/01/15 980,380
1,000 Chicago, Illinois, Wastewater Ser 1994 (MBIA) .......................... 6.375 01/01/24 1,052,550
2,000 Massachusetts Water Resources Authority, 1992 Ser A .................... 6.50 07/15/07 2,205,520
2,000 Asheville, North Carolina, Water Ser 1996 (FGIC) (WI) .................. 5.70 08/01/25 1,988,620
1,250 Philadelphia, Pennsylvania, Water & Wastewater Ser 1995 (MBIA) ......... 6.25 08/01/11 1,346,763
- --------- -----------
9,250 9,603,873
- --------- -----------
Other Revenue (3.8%)
2,000 Mashantucket (Western) Pequot Tribe, Connecticut, Special 1996
Ser A (a) (WI) ....................................................... 6.50 09/01/05 2,044,620
1,000 New Jersey Economic Development Authority, Market Transition Sr Lien
Ser 1994 A (MBIA) .................................................... 5.875 07/01/11 1,022,610
- --------- -----------
3,000 3,067,230
- --------- -----------
Refunded (2.1%)
500 Glendale Industrial Development Authority, Arizona, Thunderbird -
The American Graduate School of International Management Ser 1994
(Connie Lee) ......................................................... 7.125 07/01/05++ 576,230
1,000 Essex County Improvement Authority, New Jersey, County Jail & Youth
House Ser 1994 (AMBAC) ............................................... 6.90 12/01/04++ 1,146,700
- --------- -----------
1,500 1,722,930
- --------- -----------
77,190 TOTAL MUNICIPAL BONDS (Identified Cost $72,847,380) ..................................... 75,367,693
- --------- -----------
SHORT-TERM MUNICIPAL OBLIGATIONS (10.5%)
3,100 Valdez, Alaska, Marine Terminal Exxon Pipeline Co 1993 Ser C
(Demand 10/01/96) .................................................... 3.70* 12/01/33 3,100,000
2,600 Philadelphia Hospitals & Higher Education Facilities Authority,
Pennsylvania, Children's Hospital of Philadelphia 1996 Ser A
(Demand 10/01/96) .................................................... 4.00* 03/01/27 2,600,000
2,900 Metropolitan Nashville Airport Authority, Tennessee, American Airlines Inc
Refg Ser 1995 A (Demand 10/01/96) .................................... 3.90* 10/01/12 2,900,000
- --------- -----------
8,600 TOTAL SHORT-TERM MUNICIPAL OBLIGATIONS (Identified Cost $8,600,000) ...................... 8,600,000
- --------- -----------
$ 85,790 TOTAL INVESTMENTS (Identified Cost $81,447,380) (b) .............................. 102.9% 83,967,693
=========
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS ................................... (2.9) (2,351,488)
----- -----------
NET ASSETS ....................................................................... 100.0% $81,616,205
===== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS September 30, 1996, continued
- ------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
WI Security purchased on a when issued basis.
+ Joint exemption in New York and New Jersey.
++ Prerefunded to call date shown.
* Current coupon of variable rate security.
(a) Resale is restricted to qualified institutional investors.
(b) Cost is the same for federal income tax purposes.
Bond Insurance:
- ---------------
AMBAC AMBAC Indemnity Corporation.
Connie Lee Connie Lee Insurance Company.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
Geographic Summary of Investments
Based on Market Value as a Percent of Net Assets
September 30, 1996
Alabama ......... 3.1%
Alaska .......... 11.3
Arizona ......... 0.7
California ...... 8.1
Connecticut ..... 2.5
Florida ......... 7.0
Georgia ......... 1.9
Hawaii .......... 4.5%
Illinois ........ 5.8
Kentucky ........ 1.2
Maine ........... 3.1
Maryland ........ 1.2
Massachusetts .. 6.6
New Hampshire .. 1.7
New Jersey ...... 7.0%
New York ........ 8.2
North Carolina . 4.8
Ohio ............ 1.2
Pennsylvania ... 5.2
Puerto Rico ..... 1.8
Tennessee ....... 8.4
Texas ........... 3.6%
Utah ............ 3.3
Washington ...... 2.5
Joint Exemptions (1.8)
-----
Total ........... 102.9%
=====
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
ASSETS:
Investments in securities, at value
(identified cost $81,447,380) ............. $83,967,693
Cash ........................................ 350,356
Receivable for:
Interest ................................. 1,126,539
Shares of beneficial interest sold ...... 241,456
Deferred organizational expenses ............ 78,955
Receivable from affiliate ................... 10,951
Prepaid expenses ............................ 19,323
------------
TOTAL ASSETS ............................. 85,795,273
------------
LIABILITIES:
Payable for:
Investments purchased .................... 4,032,643
Plan of distribution fee ................. 40,917
Dividends to shareholders ................ 39,805
Investment management fee ................ 15,286
Shares of beneficial interest repurchased 2,118
Accrued expenses ........................... 48,299
------------
TOTAL LIABILITIES ........................ 4,179,068
------------
NET ASSETS:
Paid-in-capital ............................. 79,147,068
Net unrealized appreciation ................ 2,520,313
Accumulated undistributed net investment
income .................................... 2,992
Accumulated net realized loss ............... (54,168)
------------
NET ASSETS ............................... $81,616,205
============
NET ASSET VALUE PER SHARE,
7,772,649 shares outstanding (unlimited
shares authorized of $.01 par value) ..... $ 10.50
============
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
NET INVESTMENT INCOME:
INTEREST INCOME ............................. $4,386,918
------------
EXPENSES
Plan of distribution fee .................... 452,823
Investment management fee ................... 269,889
Professional fees .......................... 49,943
Shareholder reports and notices ............ 33,248
Transfer agent fees and expenses ........... 32,563
Organizational expenses .................... 28,158
Registration fees .......................... 26,027
Trustees' fees and expenses ................. 10,808
Custodian fees .............................. 4,197
Other ....................................... 11,603
------------
TOTAL EXPENSES BEFORE EXPENSE OFFSET
AND AMOUNTS REIMBURSED/WAIVED ........... 919,259
LESS: AMOUNTS REIMBURSED/WAIVED ......... (165,054)
LESS: EXPENSE OFFSET .................... (4,149)
------------
TOTAL EXPENSES AFTER EXPENSE OFFSET
AND AMOUNTS REIMBURSED/WAIVED ........... 750,056
------------
NET INVESTMENT INCOME .................... 3,636,862
------------
NET REALIZED AND UNREALIZED GAIN
(LOSS):
Net realized loss .......................... (54,168)
Net change in unrealized appreciation ...... 432,258
------------
NET GAIN ................................. 378,090
------------
NET INCREASE ................................ $4,014,952
============
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
FINANCIAL STATEMENTS, continued
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ................................. $ 3,636,862 $ 2,229,414
Net realized gain (loss) .............................. (54,168) 776
Net change in unrealized appreciation/depreciation ... 432,258 2,452,914
------------------ ------------------
NET INCREASE ........................................ 4,014,952 4,683,104
DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income ................................. (3,642,942) (2,220,342)
Net realized gain ..................................... (776) --
------------------ ------------------
Total ............................................... (3,643,718) (2,220,342)
Net increase from transactions in shares of beneficial
interest ............................................. 16,969,296 31,953,161
------------------ ------------------
TOTAL INCREASE ...................................... 17,340,530 34,415,923
NET ASSETS:
Beginning of period ................................... 64,275,675 29,859,752
------------------ ------------------
END OF PERIOD
(Including undistributed net investment income of
$2,992 and $9,072, respectively) .................... $81,616,205 $64,275,675
================== ==================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1996
1. Organization and Accounting Policies
Dean Witter National Municipal Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund's investment objective is to
provide a high level of current income which is exempt from federal income tax,
consistent with the preservation of capital. The Fund was organized as a
Massachusetts business trust on March 29, 1994 and commenced operations on June
2, 1994.
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.
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
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1996, continued
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 -- Dean Witter InterCapital Inc. (the "Investment
Manager") paid the organizational expenses of the Fund in the amount of
$148,017 which were reimbursed exclusive of $46,853 which was absorbed by the
Investment Manager. Such expenses have been deferred and are being amortized on
the straight-line method over a period not to exceed five years from the
commencement of operations.
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 0.35% 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.
The Investment Manager had undertaken to assume all expenses (except for the
plan of distribution fee and brokerage fees) and waive the compensation
provided for in the Agreement until December 31, 1995. For the period January
1, 1996 through June 30, 1997, the Investment Manager will continue to waive
the management fee and reimburse expenses (except for the plan of distribution
fee and brokerage fees) to the extent they exceed 0.50% of daily net assets. At
September 30, 1996, included in the Statement of Assets and Liabilities, is a
receivable from the Investment Manager which represents expense reimbursements
due to the Fund.
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1996, continued
3. PLAN OF DISTRIBUTION
Shares of the Fund are distributed by Dean Witter Distributors Inc. (the
"Distributor"), an affiliate of the Investment Manager. The Fund has adopted a
Plan of Distribution (the "Plan") pursuant to Rule 12b-1 under the Act pursuant
to which the Fund pays the Distributor compensation, accrued daily and payable
monthly, at an annual rate of 0.60% of the lesser of: (a) the average daily
aggregate gross sales of the Fund's shares since the Fund's inception (not
including reinvestment of dividend or capital gains distributions) less the
average daily aggregate net asset value of the Fund's shares redeemed since the
Fund's inception upon which a contingent deferred sales charge has been imposed
or upon which such charge has been waived; or (b) the Fund's average daily net
assets. Amounts paid under the Plan are paid to the Distributor to compensate
it for the services provided and the expenses borne by it and others in the
distribution of the Fund's shares, including the payment of commissions for
sales of the Fund's shares and incentive compensation to, and expenses of,
account executives of Dean Witter Reynolds Inc., an affiliate of the Investment
Manager and Distributor, and other employees and selected broker-dealers who
engage in or support distribution of the Fund's shares or who service
shareholder accounts, including overhead and telephone expenses, printing and
distribution of prospectuses and reports used in connection with the offering
of the Fund's shares to other than current shareholders and preparation,
printing and distribution of sales literature and advertising materials. In
addition, the Distributor may be compensated under the Plan for its opportunity
costs in advancing such amounts, which compensation would be in the form of a
carrying charge on any unreimbursed expenses incurred by the Distributor.
Provided that the Plan continues in effect, any cumulative expenses incurred
but not yet recovered may be recovered through future distribution fees from
the Fund and contingent deferred sales charges from the Fund's shareholders.
Although there is no legal obligation for the Fund to pay expenses incurred in
excess of payments made to the Distributor under the Plan and the proceeds of
contingent deferred sales charges paid by investors upon redemption of shares,
if for any reason the Plan is terminated, the Trustees will consider at that
time the manner in which to treat such expenses. The Distributor has advised
the Fund that such excess amounts, including carrying charges, totaled
$2,185,656 at September 30, 1996.
The Distributor has informed the Fund that for the year ended September 30,
1996, it received approx-imately $176,000 in contingent deferred sales charges
from certain redemptions of the Fund's shares.
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS September 30, 1996, continued
4. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended September 30, 1996
aggregated $25,614,487 and $9,690,374, respectively.
Dean Witter Trust Company, an affiliate of the Investment Manager and
Distributor, is the Fund's transfer agent. At September 30, 1996, the Fund had
transfer agent fees and expenses payable of approximately $2,900.
5. SHARES OF BENEFICIAL INTEREST
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Sold 2,938,811 $ 31,065,314 4,055,681 $ 40,945,963
Reinvestment of dividends 198,921 2,094,383 129,694 1,316,413
------------- -------------- ------------- --------------
3,137,732 33,159,697 4,185,375 42,262,376
Repurchased (1,548,482) (16,190,401) (1,026,786) (10,309,215)
------------- -------------- ------------- --------------
Net increase 1,589,250 $ 16,969,296 3,158,589 $ 31,953,161
============= ============== ============= ==============
</TABLE>
6. FEDERAL INCOME TAX STATUS
Capital losses incurred after October 31 ("post-October losses") within the
taxable year are deemed to arise on the first business day of the Fund's next
taxable year. The Fund incurred and will elect to defer net capital losses of
approximately $54,000 during fiscal 1996.
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a share of beneficial interest
outstanding throughout each period:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR JUNE 2, 1994*
ENDED ENDED THROUGH
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ....... $10.39 $ 9.87 $10.00
---------- ---------- ----------
Net investment income ....................... 0.50 0.50 0.09
Net realized and unrealized gain (loss) .... 0.11 0.52 (0.13)
---------- ---------- ----------
Total from investment operations ............ 0.61 1.02 (0.04)
Less dividends from net investment income .. (0.50) (0.50) (0.09)
---------- ---------- ----------
Net asset value, end of period .............. $10.50 $10.39 $ 9.87
========== ========== ==========
TOTAL INVESTMENT RETURN+ .................... 5.94% 10.54% (0.46)%(1)
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................... 0.97%(5) 0.60%(4) 0.60 %(2)(3)
Net investment income ....................... 4.72%(5) 4.93%(4) 3.07 %(2)(3)
SUPPLEMENTAL DATA:
Net asset value, end of period, in thousands $81,616 $64,276 $29,860
Portfolio turnover rate ..................... 13% 2% -- ++%
</TABLE>
- ------------
* Commencement of operations.
+ Does not reflect the deduction of sales charge. Calculated based on
the net asset value as of the last business day of the period.
++ Less than 0.5%
(1) Not annualized.
(2) Annualized.
(3) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the above annualized expense and net investment
income ratios would have been 2.08% and 1.59%, respectively.
(4) If the Fund had borne all expenses that were assumed or waived by the
Investment Manager, the above annualized expense and net investment
income ratios would have been 1.34% (which includes 0.01% gross up for
custody cash credits) and 4.20%, respectively.
(5) If the Fund had borne all expenses that were reimbursed or waived by the
Investment Manager, the above annualized expense and net investment
income ratios would have been 1.19% (which includes 0.01% gross up for
custody cash credits) and 4.50%, respectively.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
DEAN WITTER NATIONAL MUNICIPAL TRUST
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES
OF DEAN WITTER NATIONAL MUNICIPAL TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Dean Witter National Municipal
Trust (the "Fund") at September 30, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the two years in the
period then ended and for the period June 2, 1994 (commencement of operations)
through September 30, 1994, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
November 8, 1996
1996 FEDERAL TAX NOTICE (unaudited)
During the year ended September 30, 1996, the Fund paid to shareholders $0.50
per share from net investment income. All of the Fund's dividends from net
investment income were exempt interest dividends, excludable from gross income
for Federal income tax purposes.
<PAGE>
DEAN WITTER
NATIONAL MUNICIPAL
TRUST
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
John R. Haire
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Sheldon Curtis
Vice President, Sectary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Dean Witter Trust Company
Haborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10048
INVESTMENT MANAGERS
Dean Witter InterCapital Inc.
Two World Trade Center
New York, New York 10048
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 proceeded or accompanied by an effective prospective.
ANNUAL REPORT
SEPTEMBER 30, 1996
