UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-06434
Morgan Stanley Insured Municipal Trust
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: October 31, 2003
Date of reporting period: October 31, 2003
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley Insured
Municipal Trust performed during the annual period. We will provide an overview
of the market conditions, and discuss some of the factors that affected
performance during the reporting period. In addition, this report includes the
Trust's financial statements and a list of Trust investments.
Market forecasts provided in this report may not necessarily come to pass. There
is no assurance that the Trust will achieve its investment objective. The Trust
is subject to market risk, which is the possibility that market values of
securities owned by the Trust will decline and, therefore, the value of the
Trust shares may be less than what you paid for them. Accordingly you can lose
money investing in this Trust.
FUND REPORT
For the year ended October 31, 2003
MARKET CONDITIONS
Over the past 12 months the tone of the U. S. economy shifted from weak to
accelerating growth culminating in 8.2 percent GDP growth in the third quarter
of 2003. One of the most closely watched economic indicators, employment
strength, was in negative territory for much of the period. Repeated comments
from government and private sector economists suggesting that the U.S. economy
might be entering a deflationary period also weighed heavily on investors during
much of the year. At the same time, ongoing budgetary and fiscal difficulties at
the state and local levels contributed to ratings downgrades for many municipal
bonds. The Federal Reserve Board attempted to allay these fears and keep the
economy moving forward by cutting the federal funds target rate twice to a level
of 1.0 percent.
The uncertain economic climate had an effect on the municipal bond market. While
yields on intermediate and long-term bonds ended the period roughly where they
began, the road between those two points was decidedly bumpy. The 12-month
period can be divided into two distinct market environments. The first, which
lasted from October 2002 to mid-June 2003, saw municipal yields fall by roughly
75 basis points to levels not seen since the late 1960s. Plummeting yields led
to a surge in issuance as municipalities moved to lock in new low financing
rates and, in the case of older bonds, low refinancing costs. Record levels of
supply met with strong demand by investors in search of tax-exempt income to
offset low money
market rates. Also, the relatively attractive yield of municipal bonds versus
Treasuries created demand from institutional taxable investors who
"crossed-over" to purchase municipals.
The municipal market reversed abruptly in mid-June, when yields began to climb
from their lows and investors shifted their attention to the improving equity
market. Participation from cross-over investors also evaporated as taxable
yields rose faster than those of tax-exempts. Issuance remained strong through
July, but declined over the last three months as yields rose. These forces
combined to push municipal-bond yields above their historic lows, ending the
fiscal year near where they began.
PERFORMANCE ANALYSIS
The net asset value (NAV) of Morgan Stanley Insured Municipal Trust (IMT)
decreased from $15.50 to $15.38 per share for the fiscal year ended October 31,
2003. Based on this change plus reinvestment of tax-free dividends totaling
$0.898 per share, a short-term capital gain distribution of $.003 per share and
a long-term capital gain distribution of $.224 per share, the Trust's total NAV
return was 7.19 percent. IMT's value on the New York Stock Exchange (NYSE)
increased from $14.15 to $14.38 per share during the same period. Based on this
change plus reinvestment of tax-free dividends, the Trust's total market return
was 9.78 percent. On October 31, 2003, IMT's NYSE market price was at a 6.50
percent discount to its NAV. Past performance is no guarantee of future results.
2
Monthly dividends for the fourth quarter of 2003 were declared in September.
Beginning with the October payment the monthly payment decreased from $0.075 to
$0.0725 per share. The new dividend reflects the level of the Trust's
undistributed net investment income and projected earnings power. The Trust's
level of undistributed net investment income was $0.083 per share on October 31,
2003 versus $0.144 per share as of October 31, 2002. Past performance is no
guarantee of future results.
From a strategic point of view, with interest rates at multi-decade lows, we
also became increasingly concerned that the next significant shift in interest
rates would be upward. As a result, we began to establish a hedge position by
selling Treasury futures to reduce the portfolio's duration (a measure of
interest rate sensitivity). This allowed us to maintain an average maturity
target range of 20 years in order to take advantage of the steepness of the
municipal yield curve. Nevertheless, market yields on new investments were lower
than the book yields on portfolio holdings called for redemption. The
portfolio's duration adjusted for leverage was 11.4 years. We continued to
emphasize revenue bonds in sectors tied to reliable income streams from
essential services such as municipal electric, transportation and water and
sewer. As of October 31, 2003, the Trust's net assets, including preferred
shares, of $439 million were diversified across 66 credits in 13 long-term
sectors.
As discussed in previous reports, the total income available for distribution to
holders of common shares includes incremental income provided by the Trust's
outstanding Auction Rate Preferred Shares (ARPS). ARPS dividends reflect
prevailing interest rates on maturities normally ranging from one week to two
years. Incremental income to holders of common shares depends on two factors.
The first is the amount of ARPS outstanding, the second the spread between the
portfolio's cost yield and its ARPS expenses (ARPS auction rate and expenses).
The greater the spread and the amount of ARPS outstanding, the greater the
amount of incremental income available for distribution to holders of common
shares. The level of net investment income available for distribution varies
with the level of short-term interest rates. ARPS leverage also increases the
price volatility of common shares and has the effect of extending portfolio
duration.
During the 12-month period, ARPS leverage contributed approximately $0.16 per
share to common share earnings. The Trust has two ARPS series totaling $130
million and representing 30 percent of net assets including preferred shares.
Both series are two-year auctions maturing in January 2004 and January 2005
yielding 2.55 and 1.449 percent, respectively.
The Trust's procedure for reinvesting all dividends and distributions in common
shares is through purchases in the open market. This method helps support the
market value of the Trust's shares. In addition, we would like to remind you
that the Trustees have approved a procedure whereby the Trust may, when
appropriate, purchase shares in the open market or in privately negotiated
transactions at a price not above
3
market value or net asset value, whichever is lower at the time of purchase. The
Trust may also utilize procedures to reduce or eliminate the amount of
outstanding ARPS, including their purchase in the open market or in privately
negotiated transactions. During the 12-month period ended October 31, 2003, the
Trust purchased and retired 558,000 shares of common stock at a weighted average
market discount of 6.008 percent.
<Table>
<Caption>
LARGEST SECTORS
Transportation 20.3%
Water & Sewer 17.5%
General Obligation 16.5%
Electric 9.5%
IDR/PCR 9.3%
</Table>
<Table>
<Caption>
CREDIT ENHANCEMENTS
AMBAC 28.7%
FGIC 18.0%
FSA 20.4%
MBIA 34.3%
</Table>
Subject to change daily. Largest sector and credit enhancements are a percentage
of total long-term investments. Provided for informational purposes only and
should not be deemed as a recommendation to buy or sell the securities
mentioned. Morgan Stanley is a full-service firm engaged in securities trading
and brokerage activities, investment banking, research and analysis, financing
and financial advisory services.
RESULTS OF ANNUAL SHAREHOLDER MEETING
ON OCTOBER 29, 2003, AN ANNUAL MEETING OF THE TRUST'S SHAREHOLDERS WAS HELD FOR
THE PURPOSE OF VOTING ON THE FOLLOWING MATTERS, THE RESULTS OF WHICH WERE AS
FOLLOWS:
(1) ELECTION OF TRUSTEES BY ALL SHAREHOLDERS:
<Table>
- -------------------------------------------------
WAYNE E. HEDIEN
FOR: 16,132,124
WITHHELD: 300,046
- -------------------------------------------------
JOSEPH J. KEARNS
FOR: 16,141,876
WITHHELD: 290,294
- -------------------------------------------------
FERGUS REID
FOR: 16,136,389
WITHHELD: 295,780
- -------------------------------------------------
</Table>
(2) ELECTION OF TRUSTEE BY PREFERRED SHAREHOLDERS:
<Table>
- -------------------------------------------------
DR. MANUEL H. JOHNSON
FOR: 2,265
WITHHELD: 0
- -------------------------------------------------
</Table>
THE FOLLOWING TRUSTEES WERE NOT STANDING FOR REELECTION AT THIS MEETING: MICHAEL
BOZIC, CHARLES A. FIUMEFREDDO, EDWIN J. GARN, JAMES F. HIGGINS, MICHAEL E.
NUGENT AND PHILIP J. PURCELL.
4
DISTRIBUTION BY MATURITY
(% of Long Term Portfolio)
WEIGHTED AVERAGE MATURITY: 18 YEARS
<Table>
%
-------------
1-5 5.00
5-10 11.00
10-20 45.00
20-30 38.00
30+ 1.00
</Table>
Portfolio structure is subject to change.
Geographic Summary of Investments
Based on Market Value as a Percent of Total Investments
<Table>
Alaska............... 2.0%
Arizona.............. 0.5
California........... 2.4
Colorado............. 4.7
Delaware............. 3.9
Florida.............. 8.2
Georgia.............. 1.8
Hawaii............... 4.9
Idaho................ 0.3
Illinois............. 9.5
Indiana.............. 2.0
Iowa................. 1.6
Kansas............... 4.8
Kentucky............. 3.4
Louisiana............ 0.9
Maryland............. 0.6
Massachusetts........ 2.8
Michigan............. 2.5
Missouri............. 1.2
Minnesota............ 1.9
Montana.............. 0.6
Nevada............... 3.0
New Jersey........... 6.2
New York............. 7.1
North Carolina....... 0.6
Ohio................. 2.4
Pennsylvania......... 1.6
South Carolina....... 3.5
Tennessee............ 1.3
Texas................ 7.7
Utah................. 0.8
Virginia............. 1.2
Washington........... 4.1
Joint exemptions*.... 0.0
-----
Total 100.0%
=====
</Table>
- ---------------------
* Joint exemptions have been included in each geographic location.
5
CALL AND COST (BOOK) YIELD STRUCTURE
PERCENT OF BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 7 YEARS
(Based on Long-Term Portfolio) As of 10/31/03
<Table>
%
----------------
2003(a) 10.00
2004 2.00
2005 4.00
2006 5.00
2007 0.00
2008 0.00
2009 6.00
2010 17.00
2011 18.00
2012 19.00
2013+ 19.00
</Table>
COST (BOOK) YIELD(b) -- WEIGHTED AVERAGE BOOK YIELD: 5.5%
(Based on Long-Term Portfolio) As of 10/31/03
<Table>
<Caption>
%
---------
2003(a) 6.7
2004 6.90
2005 5.60
2006 6.30
2007 0.00
2008 0.00
2009 5.80
2010 5.70
2011 5.50
2012 4.80
2013+ 4.80
</Table>
(a) May include issues callable in previous years.
(b) Cost or "book" yield is the annual income earned on a portfolio investment
based on its original purchase price before the Trust's operating expenses.
For example, the Trust is earning a book yield of 6.7% on 10% of the
long-term portfolio that is callable in 2003. Portfolio structure is
subject to change.
6
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Tax-Exempt Municipal Bonds (136.0%)
General Obligation (22.5%)
$ 10,000 North Slope Borough, Alaska, Ser 2000 B (MBIA)........... 0.00 % 06/30/10 $ 7,877,900
3,000 San Diego Unified School District, California, Ser 2003 E
(FSA).................................................. 5.25 07/01/23 3,154,980
Florida State Board of Education, Capital Outlay
5,000 Refg 2002 Ser C (MBIA)***.............................. 5.00 06/01/19 5,224,400
5,000 Refg 2002 Ser C (MBIA)................................. 5.00 06/01/20 5,192,700
Honolulu City & County, Hawaii,
2,500 ROLS RR II R 237-2 (MBIA).............................. 7.77++ 03/01/25 2,678,750
2,500 ROLS RR II R 237-3 (MBIA).............................. 7.77++ 03/01/26 2,671,150
Chicago, Illinois,
8,000 Refg Ser 1992 (Ambac).................................. 6.25 01/01/11 9,416,640
2,000 Refg 2001 A (MBIA)..................................... 0.00++ 01/01/21 1,428,920
2,000 Refg 2001 A (MBIA)..................................... 0.00++ 01/01/22 1,415,620
Illinois,
10,000 Ser 2001 (MBIA)........................................ 5.375 04/01/15 11,191,600
10,000 Ser 2001 (MBIA)........................................ 5.375 04/01/16 11,168,600
3,000 Brainerd Independent School District 181, Minnesota, Ser
A (FGIC)............................................... 5.375 02/01/18 3,246,540
4,000 Clark County, Nevada, Transportation Impr Ltd Tax Ser
06/01/92 B (Ambac)..................................... 6.50 06/01/17 4,907,360
-------------
- --------
69,575,160
67,000
-------------
- --------
Educational Facilities Revenue (3.5%)
2,000 University of California, Ser 2003 A (Ambac)............. 5.00 05/15/21 2,068,980
Fulton County Development Authority, Georgia,
900 Morehouse College Ser 2000 (Ambac)..................... 6.25 12/01/21 1,045,773
1,700 Morehouse College Ser 2000 (Ambac)..................... 5.875 12/01/30 1,884,178
2,500 University of North Carolina, Ser 2000 (Ambac)........... 5.25 10/01/20 2,659,125
3,000 Utah Board of Regents, University of Utah - Huntsman
Cancer Institute Refg Ser 2000 A (MBIA)................ 5.50 04/01/18 3,302,130
-------------
- --------
10,960,186
10,100
-------------
- --------
Electric Revenue (12.9%)
5,000 California Department of Water Resources, Power Supply
Ser 2002 A (Ambac)..................................... 5.375 05/01/18 5,421,600
5,000 Long Island Power Authority, New York, Ser 2000 A
(FSA).................................................. 0.00 06/01/16 2,909,350
9,325 South Carolina Public Service Authority Ser 2002 B
(FSA).................................................. 5.375 01/01/17 10,115,574
10,000 Lower Colorado River Authority, Texas, Refg Ser 1999 A
(FSA).................................................. 5.875 05/15/16 11,358,500
10,000 Seattle, Washington, Light & Power Refg Rev 2001 (FSA)... 5.125 03/01/26 10,108,300
-------------
- --------
39,913,324
39,325
-------------
- --------
</Table>
7
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Hospital Revenue (4.2%)
$ 5,000 Brevard County Health Facilities Authority, Florida,
Wuesthoff Memorial Hospital Ser 1992 A (MBIA).......... 6.625% 04/01/13 $ 5,071,450
5,000 Missouri Health & Education Authority, SSM Healthcare Ser
2001 A (Ambac)......................................... 5.25 06/01/28 5,123,300
2,650 Montana Health Facilities Authority, Deaconess Billings
Clinic Ser 1994 (Ambac)................................ 9.436++ 02/25/25 2,759,604
-------------
- --------
12,954,354
12,650
-------------
- --------
Industrial Development/Pollution Control Revenue (12.7%)
20,000 Burlington, Kansas, Kansas Gas & Electric Co Ser 1991
(MBIA)................................................. 7.00 06/01/31 20,903,000
5,000 Humboldt County, Nevada, Sierra Pacific Power Co Refg Ser
1987 (Ambac)........................................... 6.55 10/01/13 5,216,750
5,000 New York State Energy Research & Development Authority,
Brooklyn Union Gas Co 1996 Ser (MBIA).................. 5.50 01/01/21 5,402,350
7,500 Brazos River Authority, Texas, Houston Lighting & Power
Co Ser 1992 A (Ambac).................................. 6.70 03/01/17 7,696,125
-------------
- --------
39,218,225
37,500
-------------
- --------
Mortgage Revenue - Multi-Family (2.7%)
8,195 New Jersey Housing Mortgage Finance Agency, 1995 Ser A
- -------- (Ambac)................................................ 6.05 11/01/20 8,485,759
-------------
Mortgage Revenue -- Single Family (5.3%)
1,000 Alaska Housing Finance Corporation, Governmental 1995 Ser
A (MBIA)............................................... 5.875 12/01/24 1,035,380
12,760 New Jersey Housing Mortgage Finance Authority, Home Buyer
Ser 2000 CC (AMT) (MBIA)............................... 5.875 10/01/31 13,284,436
1,880 Virginia Housing Development Authority, 2001 Ser J
(MBIA)................................................. 5.20 07/01/19 1,942,491
-------------
- --------
16,262,307
15,640
-------------
- --------
Public Facilities Revenue (3.0%)
3,000 Denver, Colorado, Civic Center Office Building Ser 2000 B
COPs (Ambac)........................................... 5.50 12/01/10+ 3,496,260
2,500 College Park Business & Industrial Development Authority,
Georgia, Civic Center Ser 2000 (Ambac)................. 5.75 09/01/26 2,728,225
3,000 Pennsylvania Public School Building Authority,
Philadelphia School District Ser 2003 (FSA)............ 5.00 06/01/33 3,018,030
-------------
- --------
9,242,515
8,500
-------------
- --------
</Table>
8
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Recreational Facilities Revenue (5.6%)
Iowa,
$ 3,600 Vision Iowa Ser 2001 (MBIA)............................ 5.50 % 02/15/19 $ 4,058,532
2,500 Vision Iowa Ser 2001 (MBIA)............................ 5.50 02/15/20 2,807,875
10,000 Hamilton County, Ohio, Sales Tax Ser 2000 (Ambac)........ 5.25 12/01/32 10,302,700
-------------
- --------
17,169,107
16,100
-------------
- --------
Transportation Facilities Revenue (27.6%)
5,000 Denver City & County, Colorado, Airport Refg Ser 2000 A
(AMT) (Ambac).......................................... 6.00 11/15/18 5,429,250
5,000 Hillsborough County Port District, Florida, Tampa Port
Authority Refg Ser 1995 (AMT) (FSA).................... 5.75 06/01/13 5,384,050
Miami-Dade County, Florida, Miami Int'l Airport
2,155 Refg Ser 2003 B (AMT) (MBIA)........................... 5.25 10/01/18 2,249,734
2,270 Refg Ser 2003 B (AMT) (MBIA)........................... 5.25 10/01/19 2,353,377
5,000 Hawaii, Airports Refg Ser 2001 (AMT) (FGIC).............. 5.25 07/01/21 5,088,000
2,000 Chicago, Illinois, O'Hare Int'l Airport Third Lien Ser
2003 (AMT) (FSA)....................................... 5.75 01/01/23 2,131,400
4,000 Regional Transportation Authority, Illinois, Refg Ser
1999 (FSA)............................................. 5.75 06/01/21 4,566,000
2,500 Maryland Economic Development Corporation, Maryland
Aviation Administration Ser 2003 (AMT) (FSA)........... 5.375 06/01/22 2,591,575
Massachusetts
5,000 Special Obligation, 2002 Ser A (FGIC).................. 5.375 06/01/18 5,408,300
2,500 Special Obligation, 2002 Ser A (FGIC).................. 5.375 06/01/19 2,687,375
5,000 Minneapolis-St Paul Metropolitan Airports Commission,
Minnesota, Ser 2001 C (FGIC)........................... 5.25 01/01/32 5,118,650
7,360 Nevada Department of Business & Industry, Las Vegas
Monorail 1st Tier Ser 2000 (Ambac)..................... 0.00 01/01/21 3,017,526
5,000 New Jersey Turnpike Authority, Ser 2003 A (Ambac)........ 5.00 01/01/30 5,057,000
Metropolitan Transportation Authority, New York,
6,805 State Service Contract Refg Ser 2002 B (MBIA).......... 5.50 07/01/20 7,421,057
10,000 Transportation Refg Ser 2002 A (Ambac)................. 5.50 11/15/17 11,096,199
4,000 Transportation Refg Ser 2002 A (FGIC).................. 5.00 11/15/25 4,046,320
4,000 Pennsylvania Turnpike Commission, Ser R 2001 (Ambac)..... 5.00 12/01/26 4,047,240
5,000 Texas Turnpike Authority, Central Texas First Tier Ser
2002 A (Ambac)......................................... 5.50 08/15/39 5,283,800
2,500 Port of Seattle, Washington, Ser 2001 B (AMT) (MBIA)..... 5.625 02/01/24 2,596,775
-------------
- --------
85,573,628
85,090
-------------
- --------
</Table>
9
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Water & Sewer Revenue (23.8%)
Phoenix Civic Improvement Corporation, Arizona,
$ 1,000 Water 2001 (FGIC)...................................... 5.50 % 07/01/23 $ 1,111,450
1,000 Water 2001 (FGIC)...................................... 5.50 07/01/24 1,106,380
10,000 Tampa Bay Water, Florida, Utility Ser 2001 B (FGIC)...... 5.00 10/01/31 10,084,100
2,000 Atlanta, Georgia, Water & Wastewater Ser 1999 A (FGIC)... 5.00 11/01/29 2,013,680
5,000 Honolulu City & County, Hawaii, Wastewater Ser 2001
(Ambac)................................................ 5.125 07/01/31 5,059,700
10,000 Louisville & Jefferson County Metropolitan Sewer
District, Kentucky, Ser 1999 A (FGIC).................. 5.75 05/15/33 10,873,200
3,800 Louisville Board of Water Works, Kentucky, Water Ser 2000
(FSA).................................................. 5.50 11/15/25 4,030,926
3,375 Massachusetts Water Resources Authority, 2000 Ser A
(FGIC)................................................. 6.00 08/01/15 3,909,263
5,000 Detroit, Michigan, Sewage Disposal Ser 2001 A (FGIC)..... 5.125 07/01/31 5,066,050
5,000 Grand Strand Water & Sewer Authority, South Carolina,
Refg Ser 2001 (FSA).................................... 5.00 06/01/31 5,034,500
10,000 Austin, Texas, Water & Wastewater Refg Ser 2001 A
(FSA).................................................. 5.125 05/15/27 10,133,900
San Antonio, Texas,
2,000 Water & Refg Ser 2002 (FSA)............................ 5.50 05/15/18 2,178,920
2,500 Water & Refg Ser 2002 (FSA)............................ 5.50 05/15/20 2,701,325
Wichita Falls, Texas,
2,000 Water & Sewer Ser 2001 (Ambac)......................... 5.375 08/01/20 2,138,340
3,000 Water & Sewer Ser 2001 (Ambac)......................... 5.375 08/01/24 3,128,040
5,000 King County, Washington, Sewer Refg 2001 (FGIC).......... 5.00 01/01/31 5,019,600
-------------
- --------
73,589,374
70,675
-------------
- --------
Other Revenue (1.1%)
3,000 Alexandria Industrial Development Authority, Virginia,
- -------- Institute for Defense Analysis Ser 2000 A (Ambac)...... 5.90 10/01/30 3,341,550
-------------
Refunded (11.1%)
15,000 Delaware Health Facilities Authority, Medical Center of
Delaware Ser 1992 (MBIA) (ETM)......................... 6.25 10/01/06 16,965,900
5,000 Hawaii, 1999 Ser CT (FSA)................................ 5.875 09/01/09+ 5,894,050
5,000 Detroit, Michigan, Water Supply Ser 1999 A (FGIC)........ 5.75 01/01/10+ 5,819,450
5,000 Shelby County Health, Educational & Housing Facility
Board, Tennessee, LeBonheur Children's Medical Center
Inc Ser D (MBIA) (ETM)................................. 5.50 08/15/19 5,678,450
-------------
- --------
34,357,850
30,000
-------------
- --------
403,775 Total Tax-Exempt Municipal Bonds (Cost $391,663,419)........................ 420,643,339
-------------
- --------
</Table>
10
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Short-Term Tax-Exempt Municipal Obligations (4.5%)
$ 1,130 Idaho Health Facilities Authority, St Luke's Regional
Medical Center Ser 2000 (FSA) (Demand 11/03/03)........ 1.15*% 07/01/30 $ 1,130,000
3,800 Indiana Health Facility Financing Authority, Clarian
Health Ser 2000 B (Demand 11/01/03).................... 1.15* 03/01/30 3,800,000
5,000 Lawrenceburg, Indiana, Indiana & Michigan Power Co Refg
Ser D (Secondary FGIC)** (Redeemed 11/14/03)........... 7.00 04/01/15 5,060,800
3,650 Louisiana Public Facilities Authority, Our Lady of the
Lake Regional Medical Center Ser 1993 D & E (FSA)...... 9.545++ 07/12/04+ 4,009,525
-------------
- --------
13,580 Total Short-Term Tax-Exempt Obligations (Cost $16,269,977).................. 14,000,325
- -------- -------------
</Table>
<Table>
$417,355 Total Investments (Cost $407,933,396) (a) (b)...................... 140.5% 434,643,664
========
Other Assets in Excess of Liabilities.............................. 1.6 4,846,377
Preferred Shares of Beneficial Interest............................ (42.1) (130,193,684)
----- -------------
Net Assets Applicable to Common Shareholders....................... 100.0% $ 309,296,357
===== =============
</Table>
- ---------------------
<Table>
Note: The categories of investments are shown as a percentage of net
assets applicable to common shareholders.
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
ROLS Reset Option Longs.
+ Prerefunded to call date shown.
++ Current coupon rate for residual interest bond. This rate
resets periodically as the auction rate on the related
security changes.
++ Currently a zero coupon security; will convert to 5.56% and
5.58%, respectively on January 1, 2011.
* Current coupon of variable rate demand obligation.
** Joint exemption in locations shown.
*** A portion of this security has been physically segregated in
connection with open futures contracts.
(a) Securities have been designated as collateral in an amount
equal to $35,034,424 in connection with open futures
contracts.
(b) The aggregate cost for federal income tax purposes is
$408,122,217. The aggregate gross unrealized appreciation is
$26,771,692 and the aggregate gross unrealized depreciation
is $250,245, resulting in net unrealized appreciation of
$26,521,447.
Bond Insurance:
- ---------------
Ambac Ambac Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</Table>
11
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2003 continued
Futures Contracts Open at October 31, 2003:
<Table>
<Caption>
DESCRIPTION/ UNDERLYING
NUMBER OF DELIVERY MONTH/ FACE AMOUNT UNREALIZED
CONTRACTS LONG/SHORT AND YEAR AT VALUE DEPRECIATION
- --------- ---------- ---------------------------- ------------ -------------
250 Short U.S. Treasury Notes 5 Year,
December 2003 $(27,953,125) $ (641,780)
100 Short U.S. Treasury Notes 10 Year,
December 2003 (11,229,688) (372,932)
-----------
Total unrealized depreciation.......................... $(1,014,712)
===========
</Table>
12
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
October 31, 2003
<Table>
Assets:
Investments in securities, at value
(cost $407,933,396)....................................... $434,643,664
Cash........................................................ 11,249
Receivable for:
Interest................................................ 6,573,707
Investments sold........................................ 122,080
Prepaid expenses............................................ 599,092
------------
Total Assets............................................ 441,949,792
------------
Liabilities:
Payable for:
Investments purchased................................... 2,058,000
Investment management fee............................... 147,487
Variation margin........................................ 77,343
Common shares of beneficial interest repurchased........ 60,748
Accrued expenses............................................ 116,173
------------
Total Liabilities....................................... 2,459,751
------------
Preferred shares of beneficial interest (at liquidation
value) (1,000,000 shares authorized of non-participating
$.01 par value, 2,600 shares outstanding)................. 130,193,684
------------
Net Assets Applicable to Common Shareholders............ $309,296,357
============
Composition of Net Assets Applicable to Common Shareholders:
Common shares of beneficial interest (unlimited shares
authorized of $.01 par value, 20,110,680 shares
outstanding).............................................. $279,323,530
Net unrealized appreciation................................. 25,695,556
Accumulated undistributed net investment income............. 1,674,806
Accumulated undistributed net realized gain................. 2,602,465
------------
Net Assets Applicable to Common Shareholders............ $309,296,357
============
Net Asset Value Per Common Share
($309,296,357 divided by 20,110,680 common shares
outstanding)................................................ $15.38
======
</Table>
13
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
FINANCIAL STATEMENTS continued
Statement of Operations
For the year ended October 31, 2003
<Table>
Net Investment Income:
Interest Income............................................. $22,275,235
-----------
Expenses
Investment management fee................................... 1,562,350
Auction commission fees..................................... 627,519
Transfer agent fees and expenses............................ 114,854
Professional fees........................................... 69,425
Shareholder reports and notices............................. 31,263
Custodian fees.............................................. 22,103
Registration fees........................................... 18,676
Trustees' fees and expenses................................. 17,352
Auction agent fees.......................................... 16,710
Other....................................................... 35,118
-----------
Total Expenses.......................................... 2,515,370
Less: expense offset........................................ (21,985)
-----------
Net Expenses............................................ 2,493,385
-----------
Net Investment Income................................... 19,781,850
-----------
Net Realized and Unrealized Gain:
Net Realized Gain on:
Investments............................................... 1,113,517
Futures contracts......................................... 1,510,136
-----------
Net Realized Gain....................................... 2,623,653
-----------
Net Change in Unrealized Appreciation/Depreciation on:
Investments............................................... 1,436,714
Futures contracts......................................... (1,014,712)
-----------
Net Appreciation........................................ 422,002
-----------
Net Gain................................................ 3,045,655
-----------
Dividends to preferred shareholders from net investment
income.................................................... (2,746,820)
-----------
Net Increase................................................ $20,080,685
===========
</Table>
14
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 2003 OCTOBER 31, 2002
---------------- ----------------
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 19,781,850 $ 22,027,914
Net realized gain........................................... 2,623,653 4,667,081
Net change in unrealized appreciation....................... 422,002 (1,853,412)
Dividends to preferred shareholders from net investment
income.................................................... (2,746,820) (3,677,658)
------------ ------------
Net Increase............................................ 20,080,685 21,163,925
------------ ------------
Dividends and Distributions to Common Shareholders from:
Net investment income....................................... (18,365,967) (17,676,573)
Net realized gain........................................... (4,649,732) (9,077,169)
------------ ------------
Total Dividends and Distributions....................... (23,015,699) (26,753,742)
------------ ------------
Decrease from transactions in common shares of beneficial
interest.................................................. (8,099,350) (5,913,700)
------------ ------------
Net Decrease............................................ (11,034,364) (11,503,517)
Net Assets Applicable to Common Shareholders:
Beginning of period......................................... 320,330,721 331,834,238
------------ ------------
End of Period
(Including accumulated undistributed net investment income
of $1,674,806 and $2,984,564, respectively)................. $309,296,357 $320,330,721
============ ============
</Table>
15
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2003
1. Organization and Accounting Policies
Morgan Stanley Insured Municipal Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Trust's investment objective is to provide
current income which is exempt from federal income tax. The Trust was organized
as a Massachusetts business trust on October 3, 1991 and commenced operations on
February 28, 1992.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- (1) portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service uses
both a computerized grid 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; (2) futures are valued
at the latest sale price on the commodities exchange on which they trade unless
it is determined that such price does not reflect their market value, in which
case they will be valued at their fair value as determined in good faith under
procedures established by and under the supervision of the Trustees; and (3)
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. Futures Contracts -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Trust is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Trust agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
variation margin are recorded by the Trust as unrealized gains and losses. Upon
16
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2003 continued
closing of the contract, the Trust realizes a gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
D. Federal Income Tax Policy -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable and nontaxable
income to its shareholders. Accordingly, no federal income tax provision is
required.
E. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
F. Use of Estimates -- 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.
2. Investment Management Agreement
Pursuant to an Investment Management Agreement with Morgan Stanley Investment
Advisors Inc. (the "Investment Manager"), the Trust pays a management fee,
calculated weekly and payable monthly, by applying the annual rate of 0.35% to
the Trust's weekly net assets including preferred shares.
3. 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 October 31, 2003 aggregated
$52,692,455 and $47,233,734, respectively. Included in the aforementioned are
purchases and sales of $9,674,184 and $9,262,885, respectively with other Morgan
Stanley funds including a net realized loss of $315,553.
Morgan Stanley Trust, an affiliate of the Investment Manager, is the Trust's
transfer agent. At October 31, 2003, the Trust had transfer agent fees and
expenses payable of approximately $12,600.
The Trust has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Trust 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 year ended October 31, 2003 included
in Trustees' fees and expenses in the Statement of Operations amounted to
$6,570. At October 31, 2003, the Trust had an accrued pension liability of
$52,587 which is included in accrued expenses in the Statement of Assets and
Liabilities.
17
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2003 continued
4. Preferred Shares of Beneficial Interest
The Trust is authorized to issue up to 1,000,000 non-participating preferred
shares of beneficial interest having a par value of $.01 per share, in one or
more series, with rights as determined by the Trustees, without approval of the
common shareholders. The Trust has issued Series TU and TH Auction Rate
Preferred Shares ("Preferred Shares") which have a liquidation value of $50,000
per share plus the redemption premium, if any, plus accumulated but unpaid
dividends, whether or not declared, thereon to the date of distribution. The
Trust may redeem such shares, in whole or in part, at the original purchase
price of $50,000 per share plus accumulated but unpaid dividends, whether or not
declared, thereon to the date of redemption.
Dividends, which are cumulative, are reset through auction procedures.
<Table>
<Caption>
AMOUNT IN RESET RANGE OF
SERIES SHARES* THOUSANDS* RATE* DATE DIVIDEND RATES**
- --------------------- ------- ---------- ----- -------- ----------------
TU 800 40,000 2.55% 01/07/04 2.55%
TH 1,800 90,000 1.449 01/07/05 1.449 - 2.10
</Table>
- ---------------------
* As of October 31, 2003.
** For the year ended October 31, 2003.
Subsequent to October 31, 2003 and up through December 5, 2003 the Trust paid
dividends to Series TU and TH at rates ranging from 2.55% to 1.449% in the
aggregate amount of $387,368.
The Trust is subject to certain restrictions relating to the preferred shares.
Failure to comply with these restrictions could preclude the Trust from
declaring any distributions to common shareholders or purchasing common shares
and/or could trigger the mandatory redemption of preferred shares at liquidation
value.
The preferred shares, which are entitled to one vote per share, generally vote
with the common shares but vote separately as a class to elect two Trustees and
on any matters affecting the rights of the preferred shares.
18
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2003 continued
5. Common Shares of Beneficial Interest
Transactions in common shares of beneficial interest were as follows:
<Table>
<Caption>
CAPITAL
PAID IN
PAR EXCESS OF
SHARES VALUE PAR VALUE
---------- -------- ------------
Balance, October 31, 2001................................... 21,081,880 210,819 293,098,296
Treasury shares purchased and retired (weighted average
discount 5.98%)*.......................................... (413,200) (4,132) (5,909,568)
Reclassification due to permanent book/tax differences...... -- -- 27,465
---------- -------- ------------
Balance, October 31, 2002................................... 20,668,680 206,687 287,216,193
Treasury shares purchased and retired (weighted average
discount 6.008%)*......................................... (558,000) (5,580) (8,093,770)
---------- -------- ------------
Balance, October 31, 2003................................... 20,110,680 $201,107 $279,122,423
========== ======== ============
</Table>
- ---------------------
* The Trustees have voted to retire the shares purchased.
6. Dividends to Common Shareholders
On September 23, 2003, the Trust declared the following dividends from net
investment income:
<Table>
<Caption>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- --------- ---------------- -----------------
$0.0725 November 7, 2003 November 21, 2003
$0.0725 December 5, 2003 December 19, 2003
</Table>
7. Expense Offset
The expense offset represents a reduction of the custodian fees for earnings on
cash balances maintained by the Trust.
8. Risks Relating to Certain Financial Instruments
The Trust may invest a portion of its assets in residual interest bonds, which
are inverse floating rate municipal obligations. The prices of these securities
are subject to greater market fluctuations during periods of changing prevailing
interest rates than are comparable fixed rate obligations.
At October 31, 2003, the Trust held positions in residual interest bonds having
a total value of $12,119,029, which represents 3.9% of the Trust's net assets
applicable to common shareholders.
To hedge against adverse interest rate changes, the Trust may invest in
financial futures contracts or municipal bond index futures contracts ("futures
contracts").
19
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2003 continued
These futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Trust bears the risk
of an unfavorable change in the value of the underlying securities.
At October 31, 2003, the Trust had outstanding futures contracts.
9. Federal Income Tax Status
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 tax purposes are reported as distributions of paid-in-capital.
The tax character of distributions paid was as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 2003 OCTOBER 31, 2002
---------------- ----------------
Tax-exempt income........................................... $21,112,235 $21,421,517
Ordinary income............................................. 69,951 1,960,266
Long-term capital gains..................................... 4,632,173 7,116,903
----------- -----------
Total distributions......................................... $25,814,359 $30,498,686
=========== ===========
</Table>
As of October 31, 2003, the tax-basis components of accumulated earnings were as
follows:
<Table>
Undistributed tax-exempt income............................. $ 2,033,474
Undistributed ordinary income............................... 76,423
Undistributed long-term gains............................... 1,587,754
-----------
Net accumulated earnings.................................... 3,697,651
Temporary differences....................................... (246,271)
Net unrealized appreciation................................. 26,521,447
-----------
Total accumulated earnings.................................. $29,972,827
===========
</Table>
As of October 31, 2003, the Trust had temporary book/tax differences primarily
attributable to book amortization of premiums on debt securities, mark-to-market
of open futures contracts and dividend payable and permanent book/tax
differences attributable to tax adjustments on debt securities sold by the
Trust. To reflect reclassifications arising from the permanent differences,
accumulated undistributed net realized gain was charged and accumulated
undistributed net investment income was credited $21,179.
20
Morgan Stanley Insured Municipal Trust
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a common share of beneficial interest
outstanding throughout each period:
<Table>
<Caption>
FOR THE YEAR ENDED OCTOBER 31
---------------------------------------------------------------------
2003 2002 2001 2000 1999
--------- --------- --------- --------- ---------
Selected Per Share Data:
Net asset value, beginning of period...................... $15.50 $15.74 $15.09 $ 14.91 $ 16.13
------ ------ ------ ------- -------
Income (loss) from investment operations:
Net investment income*................................ 0.97 1.05 1.14 1.15 1.15
Net realized and unrealized gain (loss)............... 0.14 0.15 0.79 0.14 (1.18)
Common share equivalent of dividends paid to preferred
shareholders*......................................... (0.13) (0.18) (0.22) (0.24) (0.20)
------ ------ ------ ------- -------
Total income (loss) from investment operations............ 0.98 1.02 1.71 1.05 (0.23)
------ ------ ------ ------- -------
Less dividends and distributions from:
Net investment income................................. (0.90) (0.85) (0.93) (0.93) (0.90)
Net realized gain..................................... (0.23) (0.43) (0.13) -- (0.10)
------ ------ ------ ------- -------
Total dividends and distributions......................... (1.13) (1.28) (1.06) (0.93) (1.00)
------ ------ ------ ------- -------
Anti-dilutive effect of acquiring treasury shares*........ 0.03 0.02 0.00 0.06 0.01
------ ------ ------ ------- -------
Net asset value, end of period............................ $15.38 $15.50 $15.74 $ 15.09 $ 14.91
====== ====== ====== ======= =======
Market value, end of period............................... $14.38 $14.15 $15.29 $14.188 $13.688
====== ====== ====== ======= =======
Total Return+............................................. 9.78% 1.14% 15.48% 10.87% (6.36)%
Ratios to Average Net Assets of Common Shareholders:
Total expenses (before expense offset).................... 0.80%(1) 0.76%(1) 0.71%(1) 0.71%(1) 0.69%(1)
Net investment income before preferred stock dividends.... 6.26% 6.92% 7.42% 7.74% 7.32%
Preferred stock dividends................................. 0.87% 1.15% 1.43% 1.63% 1.26%
Net investment income available to common shareholders.... 5.39% 5.77% 5.99% 6.11% 6.06%
Supplemental Data:
Net assets applicable to common shareholders,
end of period, in thousands.............................. $309,296 $320,331 $331,834 $319,076 $330,764
Asset coverage on preferred shares at end of period....... 338% 346% 354% 345% 354%
Portfolio turnover rate................................... 11% 17% 29% 26% 16%
</Table>
- ---------------------
<Table>
* The per share amounts were computed using an average number
of common shares outstanding during the period.
+ Total return is based upon the current market value on the
last day of each period reported. Dividends and
distributions are assumed to be reinvested at the prices
obtained under the Trust's dividend reinvestment plan. Total
return does not reflect brokerage commissions.
(1) Does not reflect the effect of expense offset of 0.01%.
</Table>
21
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees of
Morgan Stanley Insured Municipal Trust:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Insured Municipal Trust (the "Trust"), including the portfolio of
investments, as of October 31, 2003, and the related statements of operations
for the year then ended and changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2003, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Morgan
Stanley Insured Municipal Trust as of October 31, 2003, 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 five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
New York, New York
December 15, 2003
2003 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended October 31, 2003, the Trust paid the
following per share amounts from tax-exempt income: $0.94 to
common shareholders, $1,063 to Series TU preferred
shareholders and $617 to Series TH preferred shareholders. For
the year ended October 31, 2003, the Trust paid the following
per share amounts from long-term capital gains: $0.19 to
common shareholders, $365 to Series TU preferred shareholders
and $296 to Series TH preferred shareholders.
22
Morgan Stanley Insured Municipal Trust
TRUSTEE AND OFFICER INFORMATION
Independent Trustees:
<Table>
<Caption>
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by
Independent Trustee Registrant Time Served* Past 5 Years** Trustee***
- ------------------------------------- ----------- -------------- ------------------------------ -------------
Michael Bozic (62) Trustee Since April Retired; Director or Trustee 211
c/o Mayer, Brown, Rowe & Maw LLP 1994 of the Retail Funds and TCW/DW
Counsel to the Independent Directors Term Trust 2003 (since April
1675 Broadway 1994) and the Institutional
New York, NY Funds (since July 2003);
formerly Vice Chairman of
Kmart Corporation (December
1998-October 2000), Chairman
and Chief Executive Officer of
Levitz Furniture Corporation
(November 1995-November 1998)
and President and Chief
Executive Officer of Hills
Department Stores (May 1991-
July 1995); formerly variously
Chairman, Chief Executive
Officer, President and Chief
Operating Officer (1987-1991)
of the Sears Merchandise Group
of Sears, Roebuck & Co.
Edwin J. Garn (71) Trustee Since January Director or Trustee of the 211
c/o Summit Ventures LLC 1993 Retail Funds and TCW/DW Term
1 Utah Center Trust 2003 (since January
201 S. Main Street 1993) and the Institutional
Salt Lake City, UT Funds (since July 2003);
member of the Utah Regional
Advisory Board of Pacific
Corp.; formerly United States
Senator (R-Utah) (1974-1992)
and Chairman, Senate Banking
Committee (1980-1986), Mayor
of Salt Lake City, Utah
(1971-1974), Astronaut, Space
Shuttle Discovery (April
12-19, 1985), and Vice
Chairman, Huntsman Corporation
(chemical company).
Wayne E. Hedien (69) Trustee Since Retired; Director or Trustee 211
c/o Mayer, Brown, Rowe & Maw LLP September 1997 of the Retail Funds and TCW/DW
Counsel to the Independent Directors Term Trust 2003; (Since
1675 Broadway September 1997) and the
New York, NY Institutional Funds (since
July 2003); formerly
associated with the Allstate
Companies (1966-1994), most
recently as Chairman of The
Allstate Corporation (March
1993-December 1994) and
Chairman and Chief Executive
Officer of its wholly-owned
subsidiary, Allstate Insurance
Company (July 1989-December
1994).
<Caption>
Name, Age and Address of Other Directorships Held by
Independent Trustee Trustee
- ------------------------------------- ------------------------------
Michael Bozic (62) Director of Weirton Steel
c/o Mayer, Brown, Rowe & Maw LLP Corporation.
Counsel to the Independent Directors
1675 Broadway
New York, NY
Edwin J. Garn (71) Director of Franklin Covey
c/o Summit Ventures LLC (time management systems), BMW
1 Utah Center Bank of North America, Inc.
201 S. Main Street (industrial loan corporation),
Salt Lake City, UT United Space Alliance (joint
venture between Lockheed
Martin and the Boeing Company)
and Nuskin Asia Pacific
(multilevel marketing); member
of the board of various civic
and charitable organizations.
Wayne E. Hedien (69) Director of The PMI Group Inc.
c/o Mayer, Brown, Rowe & Maw LLP (private mortgage insurance);
Counsel to the Independent Directors Trustee and Vice Chairman of
1675 Broadway The Field Museum of Natural
New York, NY History; director of various
other business and charitable
organizations.
</Table>
23
Morgan Stanley Insured Municipal Trust
TRUSTEE AND OFFICER INFORMATION continued
<Table>
<Caption>
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by
Independent Trustee Registrant Time Served* Past 5 Years** Trustee***
- ------------------------------------- ----------- -------------- ------------------------------ -------------
Dr. Manuel H. Johnson (54) Trustee Since July Chairman of the Audit 211
c/o Johnson Smick International, Inc. 1991 Committee and Director or
2099 Pennsylvania Avenue, N.W. Trustee of the Retail Funds
Suite 950 and TCW/DW Term Trust 2003
Washington, D.C. (since July 1991) and the
Institutional Funds (since
July 2003); Senior Partner,
Johnson Smick International,
Inc., a consulting firm;
Co-Chairman and a founder of
the Group of Seven Council
(G7C), an international
economic commission; formerly
Vice Chairman of the Board of
Governors of the Federal
Reserve System and Assistant
Secretary of the U.S.
Treasury.
Joseph J. Kearns (61) Trustee Since July Deputy Chairman of the Audit 212
PMB754 2003 Committee and Director or
23852 Pacific Coast Highway Trustee of the Retail Funds
Malibu, CA and TCW/DW Term Trust 2003
(since July 2003) and the
Institutional Funds (since
August 1994); previously
Chairman of the Audit
Committee of the Institutional
Funds (October 2001-July
2003); President, Kearns &
Associates LLC (investment
consulting); formerly CFO of
the J. Paul Getty Trust.
Michael E. Nugent (67) Trustee Since July Chairman of the Insurance 211
c/o Triumph Capital, L.P. 1991 Committee and Director or
445 Park Avenue Trustee of the Retail Funds
New York, NY and TCW/DW Term Trust 2003
(since July 1991) and the
Institutional Funds (since
July 2001); General Partner of
Triumph Capital, L.P., a
private investment
partnership; formerly Vice
President, Bankers Trust
Company and BT Capital
Corporation (1984-1988).
Fergus Reid (71) Trustee Since July Chairman of the Governance 212
85 Charles Colman Blvd. 2003 Committee and Director or
Pawling, NY Trustee of the Retail Funds
and TCW/DW Term Trust 2003
(since July 2003) and the
Institutional Funds (since
June 1992); Chairman of
Lumelite Plastics Corporation.
<Caption>
Name, Age and Address of Other Directorships Held by
Independent Trustee Trustee
- ------------------------------------- ------------------------------
Dr. Manuel H. Johnson (54) Director of NVR, Inc. (home
c/o Johnson Smick International, Inc. construction); Chairman and
2099 Pennsylvania Avenue, N.W. Trustee of the Financial
Suite 950 Accounting Foundation
Washington, D.C. (oversight organization of the
Financial Accounting Standards
Board); Director of RBS
Greenwich Capital Holdings
(financial holding company).
Joseph J. Kearns (61) Director of Electro Rent
PMB754 Corporation (equipment
23852 Pacific Coast Highway leasing), The Ford Family
Malibu, CA Foundation, and the UCLA
Foundation.
Michael E. Nugent (67) Director of various business
c/o Triumph Capital, L.P. organizations.
445 Park Avenue
New York, NY
Fergus Reid (71) Trustee and Director of
85 Charles Colman Blvd. certain investment companies
Pawling, NY in the JPMorgan Funds complex
managed by JP Morgan
Investment Management Inc.
</Table>
24
Morgan Stanley Insured Municipal Trust
TRUSTEE AND OFFICER INFORMATION
Interested Trustees:
<Table>
<Caption>
Number of
Portfolios in
Position(s) Term of Office Fund Complex
Name, Age and Address of Held with and Length of Principal Occupation(s) During Overseen by
Interested Trustee Registrant Time Served* Past 5 Years** Trustee***
- ------------------------------------- ----------- -------------- ------------------------------ -------------
Charles A. Fiumefreddo (70) Chairman of Since July Chairman and Director or 211
c/o Morgan Stanley Trust the Board 1991 Trustee of the Retail Funds
Harborside Financial Center, and Trustee and TCW/DW Term Trust 2003
Plaza Two, (since July 1991) and the
Jersey City, NJ Institutional Funds (since
July 2003); formerly Chief
Executive Officer of the
Retail Funds and the TCW/DW
Term Trust 2003 (until
September 2002).
James F. Higgins (55) Trustee Since June Director or Trustee of the 211
c/o Morgan Stanley Trust 2000 Retail Funds and TCW/DW Term
Harborside Financial Center, Trust 2003 (since June 2000)
Plaza Two, and the Institutional Funds
Jersey City, NJ (since July 2003); Senior
Advisor of Morgan Stanley
(since August 2000); Director
of the Distributor and Dean
Witter Realty Inc.; previously
President and Chief Operating
Officer of the Private Client
Group of Morgan Stanley (May
1999-August 2000), and
President and Chief Operating
Officer of Individual
Securities of Morgan Stanley
(February 1997-May 1999).
Philip J. Purcell (60) Trustee Since April Director or Trustee of the 211
1585 Broadway 1994 Retail Funds and TCW/DW Term
New York, NY Trust 2003 (since April 1994)
and the Institutional Funds
(since July 2003); Chairman of
the Board of Directors and
Chief Executive Officer of
Morgan Stanley and Morgan
Stanley DW Inc.; Director of
the Distributor; Chairman of
the Board of Directors and
Chief Executive Officer of
Novus Credit Services Inc.;
Director and/or officer of
various Morgan Stanley
subsidiaries.
<Caption>
Name, Age and Address of Other Directorships Held by
Interested Trustee Trustee
- ------------------------------------- ------------------------------
Charles A. Fiumefreddo (70) None
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ
James F. Higgins (55) Director of AXA Financial,
c/o Morgan Stanley Trust Inc. and The Equitable Life
Harborside Financial Center, Assurance Society of the
Plaza Two, United States (financial
Jersey City, NJ services).
Philip J. Purcell (60) Director of American Airlines,
1585 Broadway Inc. and its parent company,
New York, NY AMR Corporation.
</Table>
- ---------------------
* This is the earliest date the Trustee began serving the funds advised by
Morgan Stanley Investment Advisors Inc. (the "Investment Manager") (the
"Retail Funds").
** The dates referenced below indicating commencement of services as
Director/Trustee for the Retail Funds and the funds advised by Morgan
Stanley Investment Management Inc., Morgan Stanley Investments LP and Morgan
Stanley AIP GP LP (the "Institutional Funds") reflect the earliest date the
Director/Trustee began serving the Retail or Institutional Funds as
applicable.
*** The Fund Complex includes all open-end and closed-end funds (including all
of their portfolios) advised by the Investment Manager and any funds that
have an investment advisor that is an affiliated person of the Investment
Manager (including but not limited to Morgan Stanley Investment Management
Inc. and Morgan Stanley Investments LP).
25
Morgan Stanley Insured Municipal Trust
TRUSTEE AND OFFICER INFORMATION continued
Officers:
<Table>
<Caption>
Term of
Position(s) Office and
Name, Age and Address of Held with Length of
Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years**
- ----------------------------- --------------- -------------- ------------------------------------------------------------
Mitchell M. Merin (50) President Since May 1999 President and Chief Operating Officer of Morgan Stanley
1221 Avenue of the Americas Investment Management Inc.; President, Director and Chief
New York, NY Executive Officer of the Investment Manager and Morgan
Stanley Services; Chairman, Chief Executive Officer and
Director of the Distributor; Chairman and Director of the
Transfer Agent; Director of various Morgan Stanley
subsidiaries; President Morgan Stanley Investments LP (since
February 2003); President of the Institutional Funds (since
July 2003) and President of the Retail Funds and TCW/DW Term
Trust 2003 (since May 1999); Trustee (since July 2003) and
President (since December 2002) of the Van Kampen Closed-End
Funds; Trustee (since May 1999) and President (since October
2002) of the Van Kampen Open-End Funds.
Ronald E. Robison (64) Executive Vice Since April Chief Global Operations Officer and Managing Director of
1221 Avenue of the Americas President and 2003 Morgan Stanley Investment Management Inc.; Managing Director
New York, NY Principal of Morgan Stanley & Co. Incorporated; Managing Director of
Executive Morgan Stanley; Managing Director, Chief Administrative
Officer Officer and Director of the Investment Manager and Morgan
Stanley Services; Chief Executive Officer and Director of
the Transfer Agent; Executive Vice President and Principal
Executive Officer of the Institutional Funds (since July
2003); and the TCW/DW Term Trust 2003 (since April 2003);
previously President of the Institutional Funds (March
2001-July 2003) and Director of the Institutional Funds
(March 2001-July 2003).
Barry Fink (48) Vice President Since February General Counsel (since May 2000) and Managing Director
1221 Avenue of the Americas and General 1997 (since December 2000) of Morgan Stanley Investment
New York, NY Counsel Management; Managing Director (since December 2000),
Secretary (since February 1997) and Director (since July
1998) of the Investment Manager and Morgan Stanley Services;
Assistant Secretary of Morgan Stanley DW; Chief Legal
Officer of Morgan Stanley Investments LP (since July 2002);
Vice President of the Institutional Funds (since July 2003);
Vice President and Secretary of the Distributor; previously
Secretary of the Retail Funds (February 1997-July 2003);
previously Vice President and Assistant General Counsel of
the Investment Manager and Morgan Stanley Services (February
1997-December 2001).
Joseph J. McAlinden (60) Vice President Since July Managing Director and Chief Investment Officer of the
1221 Avenue of the Americas 1995 Investment Manager, Morgan Stanley Investment Management
New York, NY Inc. and Morgan Stanley Investments LP; Director of the
Transfer Agent, Chief Investment Officer of the Van Kampen
Funds; Vice President of the Institutional Funds (since July
2003) and the Retail Funds (since July 1995).
Stefanie V. Chang (36) Vice President Since July Executive Director of Morgan Stanley & Co. and Morgan
1221 Avenue of the Americas 2003 Stanley Investment Management Inc. and Vice President of the
New York, NY Institutional Funds (since December 1997) and the Retail
Funds (since July 2003); formerly practiced law with the New
York law firm of Rogers & Wells (now Clifford Chance LLP).
</Table>
26
Morgan Stanley Insured Municipal Trust
TRUSTEE AND OFFICER INFORMATION continued
<Table>
<Caption>
Term of
Position(s) Office and
Name, Age and Address of Held with Length of
Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years**
- ----------------------------- --------------- -------------- ------------------------------------------------------------
Francis J. Smith (38) Treasurer and Treasurer Executive Director of the Investment Manager and Morgan
c/o Morgan Stanley Trust Chief Financial since July Stanley Services (since December 2001); previously Vice
Harborside Financial Center, Officer 2003 and Chief President of the Retail Funds (September 2002-July 2003);
Plaza Two, Financial previously Vice President of the Investment Manager and
Jersey City, NJ Officer since Morgan Stanley Services (August 2000-November 2001) and
September 2002 Senior Manager at PricewaterhouseCoopers LLP (January
1998-August 2000).
Thomas F. Caloia (57) Vice President Since July Executive Director (since December 2002) and Assistant
c/o Morgan Stanley Trust 2003 Treasurer of the Investment Manager, the Distributor and
Harborside Financial Center, Morgan Stanley Services; previously Treasurer of the Retail
Plaza Two, Funds (April 1989-July 2003); formerly First Vice President
Jersey City, NJ of the Investment Manager, the Distributor and Morgan
Stanley Services.
Mary E. Mullin (36) Secretary Since July Vice President of Morgan Stanley & Co. Incorporated and
1221 Avenue of the Americas 2003 Morgan Stanley Investment Management Inc.; Secretary of the
New York, NY Institutional Funds (since June 1999) and the Retail Funds
(since July 2003); formerly practiced law with the New York
law firms of McDermott, Will & Emery and Skadden, Arps,
Slate, Meagher & Flom LLP.
</Table>
- ---------------------
* This is the earliest date the Officer began serving the Retail Funds. Each
Officer serves an indefinite term, until his or her successor is elected.
** The dates referenced below indicating commencement of service as an Officer
for the Retail and Institutional Funds reflect the earliest date the Officer
began serving the Retail or Institutional Funds as applicable.
27
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Philip J. Purcell
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
Chairman of the Board
Mitchell M. Merin
President
Ronald E. Robison
Executive Vice President and Principal Executive Officer
Barry Fink
Vice President and General Counsel
Joseph J. McAlinden
Vice President
Stefanie V. Chang
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
Thomas F. Caloia
Vice President
Mary E. Mullin
Secretary
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
Morgan Stanley Distributors Inc., member NASD.
(c) 2003 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Insured Municipal
Trust
Annual Report
October 31, 2003
[MORGAN STANLEY LOGO]
3794RPT-00-13050L03-0P-12/03
Item 2. Code of Ethics.
(a) The Trust has adopted a code of ethics (the "Code of Ethics") that
applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the Trust or
a third party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Trust's Code of Ethics is attached hereto as Exhibit A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Trust's Board of Trustees has determined that it has two "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees: Dr. Manuel H. Johnson and Joseph J. Kearns. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services
Applicable only for reports covering fiscal years ending on or after December
15, 2003.
Item 5. Audit Committee of Listed Registrants.
Applicable only for reports covering periods ending on or after the earlier of
(i) the first annual shareholder meeting after January 15, 2004 or (ii) October
31, 2004.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Trust invests in exclusively non-voting securities and therefore this item
is not applicable.
Item 8. [Reserved.]
Item 9 - Controls and Procedures
(a) The Trust's principal executive officer and principal financial officer have
concluded that the Trust's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Trust in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
2
Item 10 Exhibits
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Insured Municipal Trust
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
December 18, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
December 18, 2003
/s/ Francis Smith
Francis Smith
Principal Financial Officer
December 18, 2003
3