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, 2004
Date of reporting period: April 30, 2004
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 semiannual 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's shares may be less than what you paid for them. Accordingly, you can
lose money investing in this Trust.
FUND REPORT
For the six-month period ended April 30, 2004
MARKET CONDITIONS
The U.S. economy continued to show improvement over the six-month period under
review. On the positive side, gross domestic product growth topped 4 percent in
both quarters. While strength in output has historically led to higher interest
rates, yields remained stubbornly low across the curve. These yields reflected
low levels of observed inflation in the economy and gradual improvement in
employment. The Federal Open Market Committee maintained its accommodative
monetary policy.
Surprising job growth in March, combined with escalating oil prices, led
investors to anticipate that the Fed would raise interest rates sooner rather
than later. Yet at its April meeting, the Federal Reserve did not change its
short-term lending rate but did signal a prospective shift in policy. As a
result, bond yields spiked across sectors and maturities.
The supply of new municipal bonds in calendar 2003 reached record levels as
municipalities took advantage of historically low interest rates. Many cities
and states reduced expenditures by refinancing existing debt at lower yields. In
other cases, municipalities attempted to meet budget needs by issuing additional
debt. Then in the first months of 2004, bond sales began to slow.
Low interest rates also had an impact on the demand for municipal bonds. Retail
and mutual fund activity slowed as holders of municipal bonds saw little reason
to sell bonds purchased at higher yields and reinvest at historically low
yields. However, insurance companies and hedge funds purchased municipal bonds
based on their attractiveness relative to taxable securities. Additionally,
investors stretched for yield by buying lower-rated bonds, causing credit
spreads to tighten.
PERFORMANCE ANALYSIS
The net asset value (NAV) of Morgan Stanley Insured Municipal Trust (IMT)
decreased from $15.38 to $15.06 per share for the six-month period ended April
30, 2004. Based on this change plus reinvestment of tax-free dividends totaling
$0.435 per share short-term capital gains of $0.004 per share and long-term
capital gains of $0.079, the Trust's total NAV return was 1.45 percent. The
Trust's value on the New York Stock Exchange (NYSE) decreased from $14.38 to
$13.44 per share during the same period. Based on this change plus reinvestment
of tax-free dividends and distributions, the Trust's total market return was
- -3.17 percent. On April 30, 2004, IMT's NYSE market price was at a 10.76 percent
discount to its NAV. Past performance is no guarantee of future results.
Monthly dividends for the second quarter of 2004, declared in March, were
unchanged at $0.0725 per share. The 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 $0.081 per share on April 30,
2004, versus $0.083 per share six months earlier.
The Trust's duration* was targeted to be shorter than its benchmark index. The
duration, adjusted for leverage, was 11.0 years. Treasury futures were sold to
reduce interest-rate exposure without raising cash in the portfolio. We
maintained an average tax-exempt
2
bond maturity objective of 20 years to take advantage of the steepness of the
municipal yield curve. Revenue bonds in sectors with reliable income streams
from essential services such as municipal electric, transportation and water and
sewer systems were emphasized. The Trust's net assets, including preferred
shares, of $428 million were diversified across 67 credits in 12 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 short-term interest rates on maturities ranging from one week to two
years. Incremental income to holders of common shares depends on two factors:
the amount of ARPS outstanding and the spread between the portfolio's cost yield
and its ARPS auction rate and expenses. The greater the spread and the higher
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 to holders of common shares 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 six-month period under review, ARPS leverage contributed
approximately $0.09 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. The series is currently in two-year auction modes
with maturities ranging from January 2005 to January 2006. The yields ranged
from 1.449 to 2.10 percent. The latest auction of $40 million Series TU ARPS in
January received a rate of 1.54 percent.
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 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.
- ---------------------
* A measure of the sensitivity of a bond's price to changes in interest rates,
expressed in years. Each year of duration represents an expected 1 percent
change in the price of a bond for every 1 percent change in interest rates.
The longer a bond's duration, the greater the effect of interest-rate
movements on its price. Typically, Trusts with shorter durations perform
better in rising-interest-rate environments, while Trusts with longer
durations perform better when rates decline.
3
<Table>
<Caption>
LARGEST SECTORS
Transportation 20.3%
Water & Sewer 18.7%
General Obligation 17.0%
Electric 11.1%
IDR/PCR* 7.8%
</Table>
<Table>
<Caption>
CREDIT ENHANCEMENTS
Ambac 27.1%
FGIC 16.6%
FSA 21.6%
MBIA 33.7%
XLCA 1.0%
</Table>
* Industrial Development/Pollution Control Revenue.
Data as of April 30, 2004. Subject to change daily. All percentages are as a
percentage of 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 securities firm engaged in
securities trading and brokerage activities, investment banking, research and
analysis, financing and financial advisory services.
4
DISTRIBUTION BY MATURITY
(% of Long-Term Portfolio) As of April 30, 2004
WEIGHTED AVERAGE MATURITY: 18 YEARS
<Table>
1-5 7
5-10 10
10-20 45
20-30 37
30+ 1
</Table>
Portfolio structure is subject to change.
Geographic Summary of Investments
Based on Market Value as a Percent of Total Investments
<Table>
Alaska.................... 2.1%
Arizona................... 0.5
California................ 3.2
Colorado.................. 4.8
Delaware.................. 3.9
Florida................... 8.4
Georgia................... 1.2
Hawaii.................... 5.0
Illinois.................. 9.7
Indiana................... 0.7
Iowa...................... 1.6
Kansas.................... 5.0
Kentucky.................. 3.5%
Louisiana................. 0.9
Maryland.................. 0.6
Massachusetts............. 2.8
Michigan.................. 2.6
Missouri.................. 1.7
Minnesota................. 2.0
Montana................... 0.6
Nevada.................... 2.9
New Jersey................ 5.5
New York.................. 6.6
North Carolina............ 3.0
Ohio...................... 2.4%
Pennsylvania.............. 1.7
South Carolina............ 3.6
Tennessee................. 1.3
Texas..................... 6.0
Utah...................... 0.8
Virginia.................. 1.2
Washington................ 4.2
-----
Total..................... 100.0%
=====
</Table>
5
CALL AND COST (BOOK) YIELD STRUCTURE
(Based on Long-Term Portfolio) As of April 30, 2004
YEARS BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 7 YEARS
<Table>
2004(a) 9
2005 4
2006 5
2007 0
2008 0
2009 7
2010 17
2011 18
2012 19
2013 8
2014+ 13
</Table>
COST (BOOK) YIELD(B) -- WEIGHTED AVERAGE BOOK YIELD: 5.5%
<Table>
2004(a) 6.5
2005 6.1
2006 6.3
2007 0
2008 0
2009 5.8
2010 5.7
2011 5.5
2012 4.8
2013 4.7
2014+ 5.2
</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 6.5% on 9% of the
long-term portfolio that is callable in 2004.
Portfolio structure is subject to change.
6
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - APRIL 30, 2004 (UNAUDITED)
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Tax-Exempt Municipal Bonds (135.7%)
General Obligation (23.1%)
$ 10,000 North Slope Borough, Alaska, Ser 2000 B (MBIA)........... 0.00 % 06/30/10 $ 7,928,900
3,000 San Diego Unified School District, California, Ser 2003 E
(FSA).................................................. 5.25 07/01/23 3,138,150
Florida State Board of Education,
5,000 Capital Outlay Refg 2002 Ser C (MBIA)**................ 5.00 06/01/19 5,194,000
5,000 Capital Outlay Refg 2002 Ser C (MBIA).................. 5.00 06/01/20 5,171,350
Honolulu City & County, Hawaii,
2,500 ROLS RR II R 237-2 (MBIA).............................. 9.29++ 03/01/25 2,651,075
2,500 ROLS RR II R 237-3 (MBIA).............................. 9.29++ 03/01/26 2,636,575
Chicago, Illinois,
8,000 Refg Ser 1992 (Ambac).................................. 6.25 01/01/11 9,244,000
2,000 Refg 2001 A (MBIA)..................................... 0.00++ 01/01/21 1,479,380
2,000 Refg 2001 A (MBIA)..................................... 0.00++ 01/01/22 1,466,880
Illinois,
10,000 Ser 2001 (MBIA)........................................ 5.375 04/01/15 10,997,300
10,000 Ser 2001 (MBIA)........................................ 5.375 04/01/16 10,989,100
3,000 Brainerd Independent School District 181, Minnesota, Ser
2002 A (FGIC).......................................... 5.375 02/01/18 3,220,140
4,000 Clark County, Nevada, Transportation Impr Ltd Tax Ser
06/01/92 B (Ambac)..................................... 6.50 06/01/17 4,817,640
-------------
- --------
68,934,490
67,000
-------------
- --------
Educational Facilities Revenue (3.6%)
2,000 University of California, Ser 2003 A (Ambac)............. 5.00 05/15/21 2,056,360
Fulton County Development Authority, Georgia,
900 Morehouse College Ser 2000 (Ambac)..................... 6.25 12/01/21 1,040,895
1,700 Morehouse College Ser 2000 (Ambac)..................... 5.875 12/01/30 1,853,289
2,500 University of North Carolina, Ser 2000 (Ambac)........... 5.25 10/01/20 2,653,325
3,000 Utah Board of Regents, University of Utah - Huntsman
Cancer Institute Refg Ser 2000 A (MBIA)................ 5.50 04/01/18 3,255,930
-------------
- --------
10,859,799
10,100
-------------
- --------
Electric Revenue (15.0%)
5,000 California Department of Water Resources, Power Supply
Ser 2002 A (Ambac)..................................... 5.375 05/01/18 5,357,250
5,000 Long Island Power Authority, New York, Ser 2000 A
(FSA).................................................. 0.00 06/01/16 2,907,950
9,325 South Carolina Public Service Authority Ser 2002 B
(FSA).................................................. 5.375 01/01/17 10,025,121
5,000 Memphis, Tennessee, Jr Lien Refg 2002 (MBIA)............. 5.00 12/01/16 5,262,350
10,000 Lower Colorado River Authority, Texas, Refg Ser 1999 A
(FSA).................................................. 5.875 05/15/16 11,207,200
10,000 Seattle, Washington, Light & Power Refg Rev 2001 (FSA)... 5.125 03/01/26 10,075,000
-------------
- --------
44,834,871
44,325
-------------
- --------
</Table>
7
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - APRIL 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Hospital Revenue (4.3%)
$ 5,000 Brevard County Health Facilities Authority, Florida,
Wuesthoff Memorial Hospital Ser 1992 A (MBIA).......... 6.625% 04/01/13 $ 5,019,900
5,000 Missouri Health & Education Authority, SSM Healthcare Ser
2001 A (Ambac)......................................... 5.25 06/01/28 5,079,100
2,650 Montana Health Facilities Authority, Deaconess Billings
Clinic Ser 1994 (Ambac)................................ 9.40++ 02/25/25 2,672,154
-------------
- --------
12,771,154
12,650
-------------
- --------
Industrial Development/Pollution Control Revenue (10.6%)
20,000 Burlington, Kansas, Kansas Gas & Electric Co Ser 1991
(MBIA)................................................. 7.00 06/01/31 21,066,000
5,000 Humboldt County, Nevada, Sierra Pacific Power Co Refg Ser
1987 (Ambac)........................................... 6.55 10/01/13 5,207,000
5,000 New York State Energy Research & Development Authority,
Brooklyn Union Gas Co 1996 Ser (MBIA).................. 5.50 01/01/21 5,295,300
-------------
- --------
31,568,300
30,000
-------------
- --------
Mortgage Revenue - Multi-Family (4.2%)
8,195 New Jersey Housing Mortgage Finance Agency, 1995 Ser A
- -------- (Ambac)................................................ 6.05 11/01/20 8,451,585
-------------
Mortgage Revenue - Single Family (3.8%)
1,000 Alaska Housing Finance Corporation, Governmental 1995 Ser
A (MBIA)............................................... 5.875 12/01/24 1,024,230
9,530 New Jersey Housing Mortgage Finance Authority, Home Buyer
Ser 2000 CC (AMT) (MBIA)............................... 5.875 10/01/31 9,892,617
1,475 Virginia Housing Development Authority, 2001 Ser J
(MBIA)................................................. 5.20 07/01/19 1,497,553
-------------
- --------
12,414,400
12,005
-------------
- --------
Public Facilities Revenue (1.9%)
2,500 College Park Business & Industrial Development Authority,
Georgia, Civic Center Ser 2000 (Ambac)................. 5.75 09/01/26 2,683,200
3,000 Pennsylvania Public School Building Authority,
Philadelphia School District Ser 2003 (FSA)............ 5.00 06/01/33 2,988,480
-------------
- --------
5,671,680
5,500
-------------
- --------
Recreational Facilities Revenue (5.7%)
Iowa,
3,600 Vision Iowa, Ser 2001 (MBIA)........................... 5.50 02/15/19 4,008,240
2,500 Vision Iowa Ser 2001 (MBIA)............................ 5.50 02/15/20 2,781,750
10,000 Hamilton County, Ohio, Sales Tax Ser 2000 (Ambac)........ 5.25 12/01/32 10,132,800
-------------
- --------
16,922,790
16,100
-------------
- --------
</Table>
8
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - APRIL 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Transportation Facilities Revenue (27.5%)
$ 5,000 Denver City & County, Colorado, Airport Refg Ser 2000 A
(AMT) (Ambac).......................................... 6.00 % 11/15/18 $ 5,464,000
5,000 Hillsborough County Port District, Florida, Tampa Port
Authority Refg Ser 1995 (AMT) (FSA).................... 5.75 06/01/13 5,284,750
Miami Dade County, Florida,
2,155 Miami Int'l Airport Refg Ser 2003 B (AMT) (MBIA)....... 5.25 10/01/18 2,253,462
2,270 Miami Int'l Airport Refg Ser 2003 B (AMT) (MBIA)....... 5.25 10/01/19 2,357,917
5,000 Hawaii, Airports Refg Ser 2001 (AMT) (FGIC).............. 5.25 07/01/21 5,108,900
2,000 Chicago, Illinois, O'Hare Int'l Airport Third Lien Ser
2003 (AMT) (FSA)....................................... 5.75 01/01/23 2,136,680
4,000 Regional Transportation Authority, Illinois, Refg Ser
1999 (FSA)............................................. 5.75 06/01/21 4,527,320
2,500 Maryland Economic Development Corporation, Maryland
Aviation Admin Ser 2003 (AMT) (FSA).................... 5.375 06/01/22 2,592,450
Massachusetts,
5,000 Special Obligation 2002 Ser A (FGIC)................... 5.375 06/01/18 5,356,950
2,500 Special Obligation 2002 Ser A (FGIC)................... 5.375 06/01/19 2,675,825
5,000 Minneapolis-St Paul Metropolitan Airports Commission,
Minnesota, Ser 2001 C (FGIC)........................... 5.25 01/01/32 5,091,050
5,000 Nevada Department of Business & Industry, Las Vegas
Monorail 1st Tier Ser 2000 (Ambac)..................... 0.00 01/01/21 2,080,450
5,000 New Jersey Turnpike Authority, Ser 2003 A (Ambac)........ 5.00 01/01/30 5,030,750
Metropolitan Transportation Authority, New York,
6,805 State Service Contract Refg Ser 2002 B (MBIA).......... 5.50 07/01/20 7,329,529
10,000 Transportation Refg Ser 2002 A (Ambac)................. 5.50 11/15/17 10,903,800
2,000 Transportation Refg Ser 2002A (FGIC)................... 5.00 11/15/25 2,020,040
4,000 Pennsylvania Turnpike Commission, Ser R 2001 (Ambac)..... 5.00 12/01/26 4,025,560
5,000 Texas Turnpike Authority, Central Texas First Tier Ser
2002 A (Ambac)......................................... 5.50 08/15/39 5,206,150
2,500 Port of Seattle, Washington, Ser 2001 B (AMT) (MBIA)..... 5.625 02/01/24 2,579,550
-------------
- --------
82,025,133
80,730
-------------
- --------
Water & Sewer Revenue (25.4%)
Phoenix Civic Improvement Corporation, Arizona,
1,000 Water 2001 (FGIC)...................................... 5.50 07/01/23 1,102,290
1,000 Water 2001 (FGIC)...................................... 5.50 07/01/24 1,098,620
3,000 Oxnard Financing Water Authority, California, Ser 2004
(XLCA)................................................. 5.00 06/01/34 2,970,840
10,000 Tampa Bay Water, Florida, Utility Ser 2001 B (FGIC)...... 5.00 10/01/31 10,002,700
2,000 Atlanta, Georgia, Water & Wastewater Ser 1999 A (FGIC)... 5.00 11/01/29 2,002,920
5,000 Honolulu City & County, Hawaii, Wastewater Ser 2001
(Ambac)................................................ 5.125 07/01/31 5,033,300
10,000 Louisville & Jefferson County Metropolitan Sewr District,
Kentucky, Ser 1999 A (FGIC)............................ 5.75 05/15/33 10,719,600
3,800 Louisville Board of Water Works, Kentucky, Water Ser 2000
(FSA).................................................. 5.50 11/15/25 3,971,152
</Table>
9
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - APRIL 30, 2004 (UNAUDITED) continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
$ 3,375 Massachusetts Water Resources Authority, 2000 Ser A
(FGIC)................................................. 6.00 % 08/01/15 $ 3,831,604
5,000 Detroit, Michigan, Sewage Disposal Ser 2001 A (FGIC)..... 5.125 07/01/31 5,033,300
5,000 Grand Strand Water & Sewer Authority, South Carolina,
Refg Ser 2001 (FSA).................................... 5.00 06/01/31 5,004,700
10,000 Austin, Texas, Water & Wastewater Refg Ser 2001 A
(FSA).................................................. 5.125 05/15/27 10,080,300
San Antonio, Texas,
2,000 Water & Refg Ser 2002 (FSA)............................ 5.50 05/15/18 2,165,920
2,500 Water & Refg Ser 2002 (FSA)............................ 5.50 05/15/20 2,686,100
Wichita Falls, Texas,
2,000 Water & Sewer Ser 2001 (Ambac)......................... 5.375 08/01/20 2,124,160
3,000 Water & Sewer Ser 2001 (Ambac)......................... 5.375 08/01/24 3,095,280
5,000 King County, Washington, Sewer Refg 2001 (FGIC).......... 5.00 01/01/31 4,981,400
-------------
- --------
75,904,186
73,675
-------------
- --------
Other Revenue (1.1%)
3,000 Alexandria Industrial Development Authority, Virginia,
- -------- Institute for Defense Analysis Ser 2000 A (Ambac)...... 5.90 10/01/30 3,278,550
-------------
Refunded (10.5%)
3,000 Denver, Colorado, Civic Center Office Building Ser 2000 B
COPs (Ambac)........................................... 5.50 12/01/10+ 3,400,680
15,000 Delaware Health Facilities Authority, Medical Center of
Delaware Ser 1992 (MBIA) (ETM)......................... 6.25 10/01/06 16,518,600
5,000 Hawaii, 1999 Ser CT (FSA)................................ 5.875 09/01/09+ 5,736,000
5,000 Detroit, Michigan, Water Supply Ser 1999 A (FGIC)........ 5.75 01/01/10+ 5,699,200
-------------
- --------
31,354,480
28,000
-------------
- --------
391,280 Total Tax-Exempt Municipal Bonds (Cost $383,928,347)........................ 404,991,418
-------------
- --------
Short-Term Tax-Exempt Municipal Obligations (5.6%)
320 Indiana Health Facility Financing Authority, Clarian
Health Ser 2000 B (Demand 05/03/04).................... 1.10* 03/01/30 320,000
3,650 Louisiana Public Facilities Authority, Our Lady of the
Lake Regional Medical Center Ser 1993 D & E (FSA)...... 9.555++ 07/12/04+ 3,855,093
2,200 Missouri Health & Educational Facilities Authority, Cox
Health Ser 1997 (MBIA) (Demand 05/03/04)............... 1.10* 06/01/15 2,200,000
10,165 University of North Carolina, Hospitals at Chapel Hill
Ser 2001 A (Demand 05/03/04)........................... 1.05* 02/15/31 10,165,000
-------------
- --------
16,335 Total Short-Term Tax-Exempt Municipal Obligations (Cost $16,465,084)........ 16,540,093
-------------
- --------
</Table>
10
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - APRIL 30, 2004 (UNAUDITED) continued
<Table>
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
- ----------------------------------------------------------------------------------------------------------
$407,615 Total Investments (Cost $400,393,431) (a) (b)...................... 141.3% 421,531,511
========
Other Assets in Excess of Liabilities.............................. 2.3 6,989,223
Preferred Shares of Beneficial Interest............................ (43.6) (130,160,020)
----- -------------
Net Assets Applicable to Common Shareholders....................... 100.0% $ 298,360,714
===== =============
</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. Positions in inverse floating rate
municipal obligations have a value of $11,814,897, which
represents 4.0% of net assets applicable to common
shareholders.
+++ 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.
** A portion of this securities have been physically segregated
in connection with open futures contracts in the amount of
$405,375.
(a) Securities have been designated as collateral in an amount
equal to $35,953,406 in connection with open futures
contracts.
(b) The aggregate cost for federal income tax purposes
approximates the aggregate cost for book purposes. The
aggregate gross unrealized appreciation is $21,688,818 and
the aggregate gross unrealized depreciation is $550,738,
resulting in net unrealized appreciation of $21,138,080.
Bond Insurance:
- ---------------
Ambac Ambac Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
XLCA XL Capital Corporation.
</Table>
Futures Contracts Open at April 30, 2004:
<Table>
<Caption>
DESCRIPTION, UNDERLYING
NUMBER OF DELIVERY MONTH FACE AMOUNT UNREALIZED
CONTRACTS LONG/SHORT AND YEAR AT VALUE APPRECIATION
- --------- ---------- ------------------- ------------ -------------
250 Short U.S. Treasury Notes
5 Year, June 2004 $(12,642,813) $ 268,317
100 Short U.S. Treasury Notes
10 Year, June 2004 (25,415,000) 742,727
----------
Total unrealized appreciation.............. $1,011,044
==========
</Table>
11
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2004 (unaudited)
<Table>
Assets:
Investments in securities, at value
(cost $400,393,431)............... $421,531,511
Cash................................ 21,807
Receivable for:
Interest........................ 6,545,068
Investments sold................ 208,553
Prepaid expenses and other assets... 666,674
------------
Total Assets.................... 428,973,613
------------
Liabilities:
Payable for:
Investment management fee....... 146,548
Variation margin................ 98,826
Common shares of beneficial
interest repurchased.......... 95,495
Accrued expenses and other
payables.......................... 112,010
------------
Total Liabilities............... 452,879
------------
Preferred shares of beneficial
interest (at liquidating value)
(1,000,000 shares authorized of
non-participating $.01 par value,
2,600 shares outstanding)......... 130,160,020
------------
Net Assets Applicable to Common
Shareholders.................. $298,360,714
============
Composition of Net Assets Applicable
to Common Shareholders:
Common shares of beneficial interest
(unlimited shares authorized of
$.01 par value,
19,805,280 shares outstanding).... $274,867,595
Net unrealized appreciation......... 22,149,124
Accumulated undistributed net
investment income................. 1,606,032
Accumulated net realized loss....... (262,037)
------------
Net Assets Applicable to Common
Shareholders.................. $298,360,714
============
Net Asset Value Per Common Share
($298,360,714 divided by 19,805,280
common shares outstanding).......... $15.06
============
</Table>
Statement of Operations
For the six months ended April 30, 2004 (unaudited)
<Table>
Net Investment Income:
Interest Income...................... $11,012,850
-----------
Expenses
Investment management fee............ 773,171
Auction commission fees.............. 323,271
Transfer agent fees and expenses..... 73,503
Professional fees.................... 35,442
Shareholder reports and notices...... 17,515
Auction agent fees................... 9,082
Custodian fees....................... 8,301
Trustees' fees and expenses.......... 6,806
Other................................ 20,749
-----------
Total Expenses................... 1,267,840
Less: expense offset................. (8,196)
-----------
Net Expenses..................... 1,259,644
-----------
Net Investment Income............ 9,753,206
-----------
Net Realized and Unrealized Gain
(Loss):
Net Realized Gain (Loss) on:
Investments.......................... 1,101,655
Futures contracts.................... (2,301,968)
-----------
Net Realized Loss................ (1,200,313)
-----------
Net Change in Unrealized
Appreciation/ Depreciation on:
Investments.......................... (5,572,188)
Futures contracts.................... 2,025,756
-----------
Net Depreciation................. (3,546,432)
-----------
Net Loss......................... (4,746,745)
-----------
Dividends to preferred shareholders
from net investment income......... (1,129,490)
-----------
Net Increase......................... $ 3,876,971
===========
</Table>
12
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
FINANCIAL STATEMENTS continued
Statement of Changes in Net Assets
<Table>
<Caption>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 2004 OCTOBER 31, 2003
-------------- ----------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 9,753,206 $ 19,781,850
Net realized gain (loss).................................... (1,200,313) 2,623,653
Net change in unrealized appreciation/depreciation.......... (3,546,432) 422,002
Dividends to preferred shareholders from net investment
income.................................................... (1,129,490) (2,746,820)
------------ ------------
Net Increase............................................ 3,876,971 20,080,685
------------ ------------
Dividends and Distributions to Common Shareholders from:
Net investment income....................................... (8,692,490) (18,365,967)
Net realized gain........................................... (1,664,189) (4,649,732)
------------ ------------
Total Dividends and Distributions....................... (10,356,679) (23,015,699)
------------ ------------
Decrease from transactions in common shares of beneficial
interest.................................................. (4,455,935) (8,099,350)
------------ ------------
Net Decrease............................................ (10,935,643) (11,034,364)
Net Assets Applicable to Common Shareholders:
Beginning of period......................................... 309,296,357 320,330,721
------------ ------------
End of Period
(Including accumulated undistributed net investment income
of $1,606,032 and $1,674,806, respectively)................. $298,360,714 $309,296,357
============ ============
</Table>
13
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2004 (UNAUDITED)
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 mean between the last reported bid and
asked price. 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.
The Trustees believe that timely and reliable market quotations are generally
not readily available for purposes of valuing tax-exempt securities and that the
valuations supplied by the pricing service are more likely to approximate the
fair value of such securities; (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
14
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2004 (UNAUDITED) continued
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 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 applicable to common shareholders.
3. Security Transactions and Transactions With Affiliates
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended April 30, 2004 aggregated
$8,507,020 and $25,043,097, respectively.
Morgan Stanley Trust, an affiliate of the Investment Manager, is the Trust's
transfer agent. At April 30, 2004, the Trust had transfer agent fees and
expenses payable of approximately $21,900.
The Trust has an unfunded noncontributory defined benefit pension plan covering
certain 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 factors which include years of service and compensation.
Aggregate pension costs for the six months ended April 30, 2004 included in
Trustees' fees and expenses in the Statement of Operations amounted to $3,300.
At April 30, 2004, the Trust had an accrued pension liability of $53,577 which
is included in accrued expenses in the Statement of Assets and Liabilities. On
December 2, 2003, the Trustees voted to close the plan to
15
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2004 (UNAUDITED) continued
new participants and eliminate the future benefits growth due to increases to
compensation after July 31, 2003
Effective April 1, 2004, the Trust began an unfunded Deferred Compensation Plan
(the "Compensation Plan"), which allows each independent Trustee to defer
payment of all, or a portion, of the fees he receives for serving on the Board
of Trustees. Each eligible Trustee generally may elect to have the deferred
amounts credited with a return equal to the total return on one or more of the
Morgan Stanley funds that are offered as investment options under the
Compensation Plan. Appreciation/depreciation and distributions received from
these investments are recorded with an offsetting increase/decrease in the
deferred compensation obligation and do not affect the net asset value of the
Trust.
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 1.54% 01/04/06 1.54%
TH 1,800 90,000 1.449 01/07/05 1.449 - 2.10
</Table>
- ---------------------
* As of April 30, 2004.
** For the six months April 30, 2004.
Subsequent to April 30, 2004 and up through June 4, 2004, the Trust paid
dividends to Series TU and TH at rates ranging from 1.54% to 1.449% in the
aggregate amount of $320,040.
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.
16
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2004 (UNAUDITED) continued
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.
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, 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
Treasury shares purchased and retired (weighted average
discount 6.488%)* (305,400) (3,054) (4,452,881)
---------- -------- ------------
Balance, April 30, 2004..................................... 19,805,280 $198,053 $274,669,542
========== ======== ============
</Table>
- ---------------------
* The Trustees have voted to retire the shares purchased.
6. Dividends to Common Shareholders
On March 30, 2004, the Trust declared the following dividends from net
investment income:
<Table>
<Caption>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- --------- ------------ -------------
$0.0725 May 7, 2004 May 21, 2004
$0.0725 June 4, 2004 June 18, 2004
</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.
To hedge against adverse interest rate changes, the Trust may invest in
financial futures contracts or municipal bond index futures contracts ("futures
contracts").
17
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2004 (UNAUDITED) 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. Risks may
also arise upon entering into these contracts from the potential inability of
the counterparties to meet the terms of their 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.
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.
18
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 SIX FOR THE YEAR ENDED OCTOBER 31,
MONTHS ENDED -----------------------------------------------------------------------
APRIL 30, 2004 2003 2002 2001 2000 1999
-------------- --------- --------- --------- ---------- ----------
(unaudited)
Selected Per Share Data:
Net asset value, beginning of
period............................. $15.38 $15.50 $15.74 $15.09 $ 14.91 $ 16.13
------ ------ ------ ------ ------- -------
Income (loss) from investment
operations:
Net investment income*.......... 0.49 0.97 1.05 1.14 1.15 1.15
Net realized and unrealized gain
(loss).......................... (0.24) 0.14 0.15 0.79 0.14 (1.18)
Common share equivalent of
dividends paid to preferred
shareholders*................... (0.06) (0.13) (0.18) (0.22) (0.24) (0.20)
------ ------ ------ ------ ------- -------
Total income (loss) from investment
operations......................... 0.19 0.98 1.02 1.71 1.05 (0.23)
------ ------ ------ ------ ------- -------
Less dividends and distributions
from:
Net investment income........... (0.44) (0.90) (0.85) (0.93) (0.93) (0.90)
Net realized gain............... (0.08) (0.23) (0.43) (0.13) -- (0.10)
------ ------ ------ ------ ------- -------
Total dividends and distributions... (0.52) (1.13) (1.28) (1.06) (0.93) (1.00)
------ ------ ------ ------ ------- -------
Anti-dilutive effect of acquiring
treasury shares*................... 0.01 0.03 0.02 0.00 0.06 0.01
------ ------ ------ ------ ------- -------
Net asset value, end of period...... $15.06 $15.38 $15.50 $15.74 $ 15.09 $ 14.91
====== ====== ====== ====== ======= =======
Market value, end of period......... $13.44 $14.38 $14.15 $15.29 $14.188 $13.688
====== ====== ====== ====== ======= =======
Total Return+....................... (3.17)%(1) 9.78% 1.14% 15.48% 10.87% (6.36)%
Ratios to Average Net Assets of
Common Shareholders:
Total expenses (before expense
offset)............................ 0.81 %(2)(3) 0.80%(3) 0.76%(3) 0.71%(3) 0.71%(3) 0.69%(3)
Net investment income before
preferred stock dividends.......... 6.26 %(2) 6.26% 6.92% 7.42% 7.74% 7.32%
Preferred stock dividends........... 0.72 %(2) 0.87% 1.15% 1.43% 1.63% 1.26%
Net investment income available to
common shareholders................ 5.54 %(2) 5.39% 5.77% 5.99% 6.11% 6.06%
Supplemental Data:
Net assets applicable to common
shareholders, end of period, in
thousands.......................... $298,361 $309,296 $320,331 $331,834 $319,076 $330,764
Asset coverage on preferred shares
at end of period................... 330 % 338% 346% 354% 345% 354%
Portfolio turnover rate............. 2 %(1) 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) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
</Table>
19
See Notes to Financial Statements
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
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
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
The financial statements included herein have been taken from the records of the
Trust without examination by the independent auditors and accordingly they do
not express an opinion thereon.
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
(c) 2004 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Insured Municipal Trust
Semiannual Report
April 30, 2004
[MORGAN STANLEY LOGO]
37974RPT-RA04-00257P-Y04/04
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
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.
Item 10 Exhibits
(a) Code of Ethics - Not applicable for semiannual reports.
(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.
2
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
June 22, 2004
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
June 22, 2004
/s/ Francis Smith
Francis Smith
Principal Financial Officer
June 22, 2004
3