485BPOS 2012-05-31 0000876162 2012-09-28 MORGAN STANLEY LTD DURATION US GOVERNMENT TRUST false 2012-09-27 2012-09-28 <tt>The Fund pays transaction costs, such as commissions, when it buys and sells<br />securities (or "turns over" its portfolio). A higher portfolio turnover rate may<br />indicate higher transaction costs and may result in higher taxes when Fund<br />shares are held in a taxable account. These costs, which are not reflected in<br />Total Annual Fund Operating Expenses or in the Example, affect the Fund's<br />performance. During the most recent fiscal year, the Fund's portfolio turnover<br />rate was 182% of the average value of its portfolio.</tt> <div style="display:none">~ http://morganstanley.com/role/ExpenseExample_S000004077Member column dei_LegalEntityAxis compact * column rr_ProspectusShareClassAxis compact * row primary compact * ~</div> <div style="display:none">~ http://morganstanley.com/role/BarChartData_S000004077Member column dei_LegalEntityAxis compact * column rr_ProspectusShareClassAxis compact * row primary compact * ~</div> <tt>Morgan Stanley Limited Duration U.S. Government Trust seeks current income,<br />preservation of principal and liquidity.</tt> <tt>The example below is intended to help you compare the cost of investing in the<br />Fund with the cost of investing in other mutual funds.<br /> <br />The example assumes that you invest $10,000 in the Fund, your investment has a<br />5% return each year, and the Fund's operating expenses remain the same. Although<br />your actual costs may be higher or lower, based on these assumptions your costs<br />would be:</tt> reflects no deduction for fees, expenses or taxes <tt>The Fund invests substantially all of its net assets in securities issued by the<br />U.S. Government, its agencies or instrumentalities, including U.S. Treasury<br />securities and Treasury Inflation Protected Securities ("TIPS"), debt securities<br />guaranteed under the Federal Deposit Insurance Corporation ("FDIC") Temporary<br />Liquidity Guarantee Program and other similar FDIC programs, and zero coupon<br />securities. The Fund's "Adviser," Morgan Stanley Investment Management Inc.,<br />seeks to maintain an overall duration of the Fund's portfolio of three years or<br />less.<br /> <br />U.S. Treasury securities are direct obligations of the U.S. Government and can<br />take the form of bonds, notes or bills. A zero coupon Treasury security pays no<br />interest to its holder during its life, but is purchased at a discount from its<br />face amount, giving the purchaser the right to receive its full value at<br />maturity. TIPS are U.S. Treasury securities whose principal and interest<br />payments are adjusted in response to the rate of inflation.<br /> <br />The mortgage-backed securities in which the Fund may invest include<br />collateralized mortgage obligations ("CMOs"), stripped mortgage-backed<br />securities ("SMBS") and inverse floating rate obligations ("inverse floaters").<br /> <br />CMOs are debt obligations collateralized by mortgage loans or mortgage<br />pass-through securities (collectively "Mortgage Assets"). Payments of principal<br />and interest on the Mortgage Assets and any reinvestment income are used to make<br />payments on the CMOs. CMOs are issued in multiple classes and each class has a<br />fixed or floating rate and a stated maturity or final distribution date. Certain<br />classes will have more predictable cash flows than others. The Fund may invest in<br />any class of CMO.<br /> <br />SMBS are derivative multi-class mortgage securities. A common type of SMBS will<br />have one class receiving some of the interest and most of the principal from the<br />Mortgage Assets, while the other class receives most of the interest and the<br />remainder of the principal. In the most extreme case, one class will receive all<br />of the interest (the interest-only or "IO" class), while the other class will<br />receive all of the principal (the principal-only or "PO" class).<br /> <br />Inverse floaters are obligations which pay interest at rates that vary inversely<br />with changes in market rates of interest. Because the interest rate paid to<br />holders of such obligations is generally determined by subtracting a variable or<br />floating rate from a predetermined amount, the interest rate paid to holders of<br />such obligations will decrease as such variable or floating rate increases and<br />increase as such variable or floating rate decreases.<br /> <br />The Fund may, but is not required to, use derivative instruments for a variety<br />of purposes, including hedging, risk management, portfolio management or to earn<br />income. The Fund's use of derivatives may involve the purchase and sale of<br />derivative instruments such as futures, options, swaps, and other related<br />instruments and techniques.</tt> Fund Summary Example The after-tax returns shown in the table above are calculated using the historical highest individual federal marginal income tax rates during the period shown and do not reflect the impact of state and local taxes. Investment Objective The Fund's past performance (before and after taxes) does not indicate how the Fund will perform in the future. There is no assurance that the Fund will achieve its investment objective and you can lose money investing in this Fund. Principal Risks After-tax returns may be higher than before-tax returns due to foreign tax credits and/or an assumed benefit from capital losses that would have been realized had Fund shares been sold at the end of the relevant periods, as applicable. 1.82 Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. Annual Total Returns--Calendar Years Past Performance <tt>The after-tax returns shown in the table above are calculated using the<br />historical highest individual federal marginal income tax rates during the period <br />shown and do not reflect the impact of state and local taxes. Actual after-tax <br />returns depend on an investor's tax situation and may differ from those shown, <br />and after-tax returns are not relevant to investors who hold their Fund shares <br />through tax-deferred arrangements, such as 401(k) plans or individual retirement <br />accounts. After-tax returns may be higher than before-tax returns due to foreign <br />tax credits and/or an assumed benefit from capital losses that would have been <br />realized had Fund shares been sold at the end of the relevant periods, as <br />applicable.</tt> The bar chart and table below provide some indication of the risks of investing in the Fund by showing changes in the Fund's performance from year to year and by showing how the Fund's average annual returns for the one, five and 10 year periods compared with those of a broad measure of market performance, as well as an index that represents a group of similar mutual funds, over time. <tt>The year-to-date total return as of June 30, 2012 was 0.60%.<br /> <br />High Quarter 3/31/08 2.86%<br />Low Quarter 6/30/04 -0.78%</tt> (800) 869-NEWS Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) Average Annual Total Returns For the Periods Ended December 31, 2011 Portfolio Turnover <tt>There is no assurance that the Fund will achieve its investment objective and<br />you can lose money investing in this Fund. The principal risks of investing in<br />the Fund include:<br /> <br />&#x2022; U.S. Government Securities. The U.S. government securities in which the Fund<br />invests can be subject to two types of risk: credit risk and interest rate risk.<br />When the general level of interest rates goes up, the prices of most<br />fixed-income securities go down. When the general level of interest rates goes<br />down, the prices of most fixed-income securities go up. While the credit risk<br />associated with U.S. government securities generally is considered to be<br />minimal, the interest rate risk can be substantial. In addition, while TIPS may<br />provide investors with a hedge against inflation, in the event of deflation, in<br />which prices decline over time, the principal and income of inflation-protected<br />bonds would likely decline in price, resulting in losses to the Fund. With<br />respect to securities guaranteed under the FDIC Temporary Liquidity Guarantee<br />Program, there is no designated period within which the FDIC is required to make<br />guarantee payments. With respect to U.S. government securities that are not<br />backed by the full faith and credit of the United States, there is the risk that<br />the U.S. Government will not provide financial support to such U.S. government<br />agencies, instrumentalities or sponsored enterprises if it is not obligated to<br />do so by law.<br /> <br />&#x2022; Zero Coupon Securities. The interest earned on zero coupon securities is,<br />implicitly, automatically compounded and paid out at maturity. While such<br />compounding at a constant rate eliminates the risk of receiving lower yields<br />upon reinvestment of interest if prevailing interest rates decline, the owner of<br />a zero coupon security will be unable to participate in higher yields upon<br />reinvestment of interest received on interest-paying securities if prevailing<br />interest rates rise. A zero coupon security pays no interest to its holder<br />during its life. Therefore, to the extent the Fund invests in zero coupon<br />securities, it will not receive current cash available for distribution to<br />shareholders. In addition, zero coupon securities are subject to substantially<br />greater price fluctuations during periods of changing prevailing interest rates<br />than are comparable securities which pay interest on a current basis.<br /> <br />&#x2022; Mortgage-Backed Securities. Mortgage-backed securities entail prepayment risk,<br />which generally increases during a period of falling interest rates. Certain<br />mortgage-backed securities may be more volatile and less liquid than other<br />traditional types of debt securities. In addition, an unexpectedly high rate of<br />defaults on the mortgages held by a mortgage pool may adversely affect the value<br />of a mortgage-backed security and could result in losses to the Fund. The risk<br />of such defaults is generally higher in the case of mortgage pools that include<br />sub-prime mortgages.<br /> <br />&#x2022; CMOs. CMOs are comprised of various tranches, the expected cash flows on which<br />have varying degrees of predictability as compared with the underlying Mortgage<br />Assets. The less predictable the cash flow, the higher the yield and the greater<br />the risk. In addition, if the collateral securing CMOs or any third-party<br />guarantees are insufficient to make payments, the Fund could sustain a loss.<br /> <br />&#x2022; SMBS. Investments in each class of SMBS are extremely sensitive to changes in<br />interest rates. IOs tend to decrease in value substantially if interest rates<br />decline and prepayment rates become more rapid. POs tend to decrease in value<br />substantially if interest rates increase and the rate of prepayment decreases.<br />If the Fund invests in SMBS and interest rates move in a manner not anticipated<br />by Fund management, it is possible that the Fund could lose all or substantially<br />all of its investment.<br /> <br />&#x2022; Inverse Floaters. Like most other fixed-income securities, the value of<br />inverse floaters will decrease as interest rates increase. They are more<br />volatile, however, than most other fixed-income securities because the coupon<br />rate on an inverse floater typically changes at a multiple of the change in the<br />relevant index rate. Thus, any rise in the index rate (as a consequence of an<br />increase in interest rates) causes a correspondingly greater drop in the coupon<br />rate of an inverse floater while a drop in the index rate causes a<br />correspondingly greater increase in the coupon rate of an inverse floater. Some<br />inverse floaters may also increase or decrease substantially because of changes<br />in the rate of prepayments.<br /> <br />&#x2022; Derivatives. A derivative instrument often has risks similar to its underlying<br />asset and may have additional risks, including imperfect correlation between the<br />value of the derivative and the underlying asset, risks of default by the<br />counterparty to certain transactions, magnification of losses incurred due to<br />changes in the market value of the securities, instruments, indices or interest<br />rates to which they relate, and risks that the transactions may not be liquid.<br />Certain derivative transactions may give rise to a form of leverage. Leverage<br />magnifies the potential for gain and the risk of loss.<br /> <br />Shares of the Fund are not bank deposits and are not guaranteed or insured by<br />the FDIC or any other government agency.</tt> Fees and Expenses Principal Investment Strategies www.morganstanley.com/im <tt>The bar chart and table below provide some indication of the risks of investing<br />in the Fund by showing changes in the Fund's performance from year to year and<br />by showing how the Fund's average annual returns for the one, five and 10 year<br />periods compared with those of a broad measure of market performance, as well as<br />an index that represents a group of similar mutual funds, over time. The Fund's<br />returns assume you sold your shares at the end of each period (unless otherwise<br />noted). The Fund's past performance (before and after taxes) does not indicate<br />how the Fund will perform in the future. Updated performance information is<br />available online at www.morganstanley.com/im or by calling toll-free (800)<br />869-NEWS.</tt> <tt>The table below describes the fees and expenses that you may pay if you buy and<br />hold shares of the Fund. The Fund does not impose an initial or deferred sales<br />charge and does not charge account or exchange fees.</tt> <div style="display:none">~ http://morganstanley.com/role/OperatingExpensesData_S000004077Member column dei_LegalEntityAxis compact * column rr_ProspectusShareClassAxis compact * row primary compact * ~</div> <div style="display:none">~ http://morganstanley.com/role/PerformanceTableData_S000004077Member column dei_LegalEntityAxis compact * column rr_ProspectusShareClassAxis compact * column rr_PerformanceMeasureAxis compact * row primary compact * ~</div> Shares of the Fund are not bank deposits and are not guaranteed or insured by the FDIC or any other government agency. Lipper Short U.S. Government Funds Index (reflects no deduction for taxes) 0.0144 0.0335 0.0301 Barclays Capital 1-3 Year U.S. Government Bond Index (reflects no deduction for fees, expenses or taxes) 0.0156 0.0380 0.0338 Returns After Taxes on Distributions and Sale of Fund Shares 0.0117 0.0230 0.0155 Returns After Taxes on Distributions 0.0117 0.0240 0.0146 LDTRX 0.0417 Low Quarter High Quarter 2012-06-30 Returns Before Taxes 0.0025 77 2008-03-31 240 -0.0078 0.0027 0.0179 930 417 0.0603 0.0286 0.0180 0.0023 0.0504 0.0027 2004-06-30 0.0207 0.0333 0.0118 The year-to-date total return 0.018 0.0087 0.0264 0.0075 0.0337 0.0060 0000876162 ck0000876162:SummaryS000004077Memberck0000876162:S000004077Memberck0000876162:C000011413Member 2012-09-28 2012-09-28 0000876162 ck0000876162:SummaryS000004077Memberck0000876162:S000004077Memberrr:AfterTaxesOnDistributionsMemberck0000876162:C000011413Member 2012-09-28 2012-09-28 0000876162 ck0000876162:SummaryS000004077Memberck0000876162:S000004077Memberrr:AfterTaxesOnDistributionsAndSalesMemberck0000876162:C000011413Member 2012-09-28 2012-09-28 0000876162 ck0000876162:SummaryS000004077Memberck0000876162:S000004077Memberck0000876162:RRINDEX00001Member 2012-09-28 2012-09-28 0000876162 ck0000876162:SummaryS000004077Memberck0000876162:S000004077Memberck0000876162:RRINDEX00002Member 2012-09-28 2012-09-28 0000876162 ck0000876162:SummaryS000004077Memberck0000876162:S000004077Member 2012-09-28 2012-09-28 0000876162 2012-09-28 2012-09-28 pure iso4217:USD These returns do not reflect any tax consequences from a sale of your shares at the end of each period. The Barclays Capital 1-3 Year U.S. Government Bond Index is a sub-index of the Barclays Capital U.S. Government Bond Index and is comprised of Agency and Treasury securities with maturities of one to three years. It is not possible to invest directly in an index. The Lipper Short U.S. Government Funds Index is an equally weighted performance index of the largest qualifying funds (based on net assets) in the Lipper Short U.S. Government Funds classification. The Index, which is adjusted for capital gains distributions and income dividends, is unmanaged and should not be considered an investment. There are currently 30 funds represented in this Index.