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: October 31, 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 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's 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, 2004
MARKET CONDITIONS
The U.S. economy continued to expand during the Trust's fiscal year ended
October 31, 2004. However, through the spring and summer the economy hit what
Federal Reserve Board Chairman Alan Greenspan described as a "soft patch." Oil
prices almost doubled, reaching record highs, and employment growth weakened. As
a result, real gross domestic product growth that had averaged 4.3 percent in
the first half of the fiscal period slowed to 3.5 percent in the second.
Throughout most of the year, the Federal Reserve Open Market Committee (the
"Fed") maintained its short-term borrowing rate (the federal funds rate) at an
historic low. By April the market had begun to anticipate that the Fed would
begin to increase short-term interest rates in response to higher commodity
prices and reduced concern about the risk of deflation. In a series of three
measured moves between June and the end of October, the Fed did increase the
federal funds rate, from 1.00 to 1.75 percent.
Rising inflation fears led to rising bond yields from April to June. The market
reversed course in July, however, with yields falling from July through October
as investors became concerned with slower growth. Rising and falling yields
tended to offset each other over the entire period, and long-term municipal bond
yields at the end of October had changed little from where they had begun the
fiscal year. Higher short-term interest rates reduced the yield pickup for
extending to longer maturities, and the yield curve flattened.
The supply of new-issue municipal bonds declined by 8 percent in the first 10
months of 2004. California remained the largest issuer, accounting for 16
percent of total underwriting volume. New York was second, and accounted for 9
percent of total underwriting volume. The ratio of municipal yields to Treasury
yields, which serves as a gauge of relative performance, indicated that
municipals generally remained attractive relative to Treasuries during the
period. As a result, taxable investors such as insurance companies and hedge
funds that normally focus on other sectors of the bond market supported
municipal bond prices by "crossing over" to purchase municipal bonds.
PERFORMANCE ANALYSIS
The net asset value (NAV) of Morgan Stanley Insured Municipal Trust (IMT) moved
from $15.38 to $15.49 per share. Based on this increase plus the reinvestment of
tax-free dividends totaling $0.865 per share, ordinary dividends of $0.004 per
share and long-term capital gains of $0.079 per share. The Trust's total NAV
return was 7.69 percent. IMT's value on the New York Stock Exchange (NYSE)
decreased from $14.38 to $13.88 per share during the same period. Based on this
change plus the reinvestment of tax-free dividends and distributions, IMT's
total market return was 3.21 percent. IMT's share price was trading at a 10.39
percent discount to its NAV on October 31, 2004. Past performance is no
guarantee of future results.
Monthly dividends for the fourth quarter of 2004 declared in September were
decreased from $0.0725 to $0.0675 per share to reflect the Trust's current and
projected earnings level. The Trust's level of undistributed net investment
income was $0.076 per share on October 31, 2004, versus $0.083 per share 12
months earlier.
2
One of our key strategies in managing the Trust was to keep its overall
interest-rate sensitivity lower than that of its benchmark index. This defensive
strategy helped performance early in the period when rates rose, but had the net
effect of hampering total returns over the whole period by limiting the Trust's
participation in the rally later in the period. The Trust's duration,* adjusted
for leverage, was 9.9 years. The Trust's net assets, including preferred shares,
of $430 million were diversified across 69 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 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 this 12-month period, ARPS leverage contributed approximately $0.20 per
share to common-share earnings. The Trust has two ARPS series totaling $130
million, representing 30 percent of net assets, including preferred shares. Both
series are currently in two-year auction modes with maturities ranging from
January 2005 to January 2006. The yields ranged from 1.449 to 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 ARPS outstanding, including their purchase in the
open market or in privately negotiated transactions. During the 12-month period
ended October 31, 2004, the Trust purchased and retired 723,700 shares of common
stock at a weighted average market discount of 8.70 percent.
- ----------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. Investment return, net asset value and common share market price will
fluctuate and trust shares, when sold, may be worth more or less than their
original cost.
There is no guarantee that any securities mentioned will continue to perform
well or be held by the Trust in the future.
* 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
Water & Sewer 32.9%
Transportation 29.7%
General Obligation 25.1%
Electric 13.9%
Refunded 10.3%
</Table>
<Table>
<Caption>
CREDIT ENHANCEMENTS
AMBAC 28.6%
MBIA 27.5%
FGIC 21.1%
FSA 22.8%
</Table>
Data as of October 31, 2004. Subject to change daily. All percentages for top
five largest sectors are as a percentage of net assets applicable to common
shareholders. All percentages for credit enhancements are as a percentage of
total long-term investments. These data are provided for informational purposes
only and should not be deemed 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.
RESULTS OF ANNUAL SHAREHOLDER MEETING
ON OCTOBER 26, 2004, AN ANNUAL MEETING OF THE TRUST'S SHAREHOLDERS WAS HELD FOR
THE PURPOSE OF VOTING ON THE FOLLOWING MATTER, THE RESULTS OF WHICH WERE AS
FOLLOWS:
ELECTION OF TRUSTEES:
<Table>
- -------------------------------------------------
EDWIN J. GARN
FOR: 15,187,708
WITHHELD: 570,917
- -------------------------------------------------
MICHAEL E. NUGENT
FOR: 15,190,520
WITHHELD: 568,105
- -------------------------------------------------
</Table>
THE FOLLOWING TRUSTEES WERE NOT STANDING FOR REELECTION AT THIS MEETING: MICHAEL
BOZIC, CHARLES A. FIUMEFREDDO, JAMES F. HIGGINS, MANUEL H. JOHNSON, JOSEPH J.
KEARNS, MICHAEL E. NUGENT AND FERGUS REID.
4
DISTRIBUTION BY MATURITY
(% of Long-Term Portfolio) As of October 31, 2004
WEIGHTED AVERAGE MATURITY: 17 YEARS
<Table>
1-5 5.00
5-10 9.00
10-20 50.00
20-30 36.00
30+ 0.00
</Table>
Portfolio structure is subject to change.
Geographic Summary of Investments
Based on Market Value as a Percent of Total Investments
<Table>
Alaska................. 2.2%
Arizona................ 1.0
California............. 6.1
Colorado............... 4.7
Delaware............... 3.8
Florida................ 7.2
Georgia................ 3.1
Hawaii................. 5.2
Illinois............... 10.0
Indiana................ 0.5
Iowa................... 1.7
Kentucky............... 3.6%
Maryland............... 0.6
Massachusetts.......... 2.9
Michigan............... 2.5
Minnesota.............. 2.0
Missouri............... 2.2
Montana................ 0.6
Nevada................. 2.9
New Jersey............. 4.5
New York............... 7.0
North Carolina......... 0.6
Ohio................... 2.5%
Pennsylvania........... 3.2
South Carolina......... 4.1
Texas.................. 9.1
Utah................... 0.8
Virginia............... 1.2
Washington............. 4.2
Joint exemption*....... 0.0
-----
Total+................. 100.0%
=====
</Table>
- ------------------
* Joint exemptions have been included in each geographic location.
+ Does not include open short futures contracts with an underlying face amount
of $81,567,188 with unrealized depreciation of $1,033,106.
5
CALL AND COST (BOOK) YIELD STRUCTURE
(Based on Long-Term Portfolio) As of October 31, 2004
PERCENT OF BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 7 YEARS
<Table>
2005 5
2006 5
2007 0
2008 0
2009 7
2010 16
2011 18
2012 18
2013 7
2014+ 24
</Table>
COST (BOOK) YIELD(A) -- WEIGHTED AVERAGE BOOK YIELD: 5.3%
<Table>
2005 6.2
2006 6.3
2007 0.0
2008 0.0
2009 5.8
2010 5.7
2011 5.5
2012 4.8
2013 4.9
2014+ 5.0
</Table>
(a) 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 6.2% on 5% of the
long-term portfolio that is callable in 2005.
Portfolio structure is subject to change.
6
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Tax - Exempt Municipal Bonds (140.1%)
General Obligation (25.1%)
$ 10,000 North Slope Borough, Alaska, Ser 2000 B (MBIA)........... 0.00 % 06/30/10 $ 8,266,100
3,000 Los Angeles, California, Ser 2004 A (MBIA)............... 5.00 09/01/24 3,173,040
3,000 San Diego Unified School District, California, Ser 2003 E
(FSA).................................................. 5.25 07/01/23 3,405,810
Florida State Board of Education,
5,000 Capital Outlay Refg 2002 Ser C (MBIA)**................ 5.00 06/01/19 5,394,400
5,000 Capital Outlay Refg 2002 Ser C (MBIA).................. 5.00 06/01/20 5,356,500
Honolulu City & County, Hawaii,
2,500 ROLS RR II R 237-2 (MBIA).............................. 8.628++ 03/01/25 2,842,275
2,500 ROLS RR II R 237-3 (MBIA).............................. 8.628++ 03/01/26 2,817,000
Chicago, Illinois
8,000 Refg Ser 1992 (Ambac).................................. 6.25 01/01/11 9,407,840
2,000 Refg 2001 A (MBIA)..................................... 0.00++ 01/01/21 1,610,040
2,000 Refg 2001 A (MBIA)..................................... 0.00++ 01/01/22 1,597,380
Illinois,
10,000 Ser 2001 (MBIA)........................................ 5.375 04/01/15 11,507,400
10,000 Ser 2001 (MBIA)........................................ 5.375 04/01/16 11,533,400
3,000 Brainerd Independent School District 181, Minnesota, Ser
2002 A (FGIC).......................................... 5.375 02/01/18 3,375,960
4,000 Clark County, Nevada, Transportation Impr Ltd Tax Ser
06/01/92 B (Ambac)..................................... 6.50 06/01/17 5,042,640
-------------
- --------
75,329,785
70,000
-------------
- --------
Educational Facilities Revenue (4.4%)
2,000 Arizona Board of Regents, Arizona State University, Ser
2004 COPs (Ambac)...................................... 5.00 09/01/30 2,063,420
2,000 University of California, Ser 2003 A (Ambac)............. 5.00 05/15/21 2,136,780
Fulton County Development Authority, Georgia,
900 Morehouse College Ser 2000 (Ambac)..................... 6.25 12/01/21 1,060,353
1,700 Morehouse College Ser 2000 (Ambac)..................... 5.875 12/01/30 1,933,597
2,500 University of North Carolina, Ser 2000 (Ambac)........... 5.25 10/01/20 2,762,350
3,000 Utah Board of Regents, University of Utah - Huntsman
Cancer Institute Refg Ser 2000 A (MBIA)................ 5.50 04/01/18 3,348,060
-------------
- --------
13,304,560
12,100
-------------
- --------
Electric Revenue (13.9%)
5,000 California Department of Water Resources, Power Supply
Ser 2002 A (Ambac)..................................... 5.375 05/01/18 5,546,000
2,000 Indiana Municipal Power Agency Power, Supply 2004 Ser A
(FGIC) (WI)............................................ 5.00 01/01/32 2,036,340
</Table>
See Notes to Financial Statements
7
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2004 continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
South Carolina Public Service Authority,
$ 9,325 Ser 2002 B (FSA)....................................... 5.375% 01/01/17 $ 10,443,907
2,000 Ser 2003 A (Ambac)..................................... 5.00 01/01/27 2,073,200
10,000 Lower Colorado River Authority, Texas, Refg Ser 1999 A
(FSA).................................................. 5.875 05/15/16 11,343,400
10,000 Seattle, Washington, Light & Power Refg Rev 2001 (FSA)... 5.125 03/01/26 10,339,600
-------------
- --------
41,782,447
38,325
-------------
- --------
Hospital Revenue (2.6%)
5,000 Missouri Health & Education Authority, SSM Healthcare Ser
2001 A (Ambac)......................................... 5.25 06/01/28 5,227,850
2,650 Montana Health Facilities Authority, Deaconess Billings
Clinic Ser 1994 (Ambac)................................ 8.828++ 02/25/25 2,765,885
-------------
- --------
7,993,735
7,650
-------------
- --------
Industrial Development/Pollution Control Revenue (3.5%)
5,000 Humboldt County, Nevada, Sierra Pacific Power Co Refg Ser
1987 (Ambac)........................................... 6.55 10/01/13 5,230,500
5,000 New York State Energy Research & Development Authority,
Brooklyn Union Gas Co 1996 Ser (MBIA).................. 5.50 01/01/21 5,277,550
-------------
- --------
10,508,050
10,000
-------------
- --------
Mortgage Revenue - Multi-Family (2.8%)
8,195 New Jersey Housing Mortgage Finance Agency, 1995 Ser A
- -------- (Ambac)................................................ 6.05 11/01/20 8,425,935
-------------
Mortgage Revenue - Single Family (2.8%)
1,000 Alaska Housing Finance Corporation, Governmental 1995 Ser
A (MBIA)............................................... 5.875 12/01/24 1,031,190
5,665 New Jersey Housing Mortgage Finance Authority, Home Buyer
Ser 2000 CC (AMT) (MBIA)............................... 5.875 10/01/31 5,736,322
1,445 Virginia Housing Development Authority, 2001 Ser J
(MBIA)................................................. 5.20 07/01/19 1,502,728
-------------
- --------
8,270,240
8,110
-------------
- --------
Public Facilities Revenue (2.5%)
2,500 College Park Business & Industrial Development Authority,
Georgia, Civic Center Ser 2000 (Ambac)................. 5.75 09/01/26 2,814,475
1,500 Albuquerque, New Mexico, Gross Receipts Lodgers' Tax Refg
Ser 2004A (FSA)........................................ 5.00 07/01/37 1,530,465
3,000 Pennsylvania Public School Building Authority,
Philadelphia School
District Ser 2003 (FSA)................................ 5.00 06/01/33 3,078,870
-------------
- --------
7,423,810
7,000
-------------
- --------
</Table>
See Notes to Financial Statements
8
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2004 continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Recreational Facilities Revenue (5.9%)
Iowa,
$ 3,600 Vision Iowa Ser 2001 (MBIA)............................ 5.50 % 02/15/19 $ 4,228,560
2,500 Vision Iowa Ser 2001 (MBIA)............................ 5.50 02/15/20 2,933,625
10,000 Hamilton County, Ohio, Sales Tax Ser 2000 (Ambac)........ 5.25 12/01/32 10,541,600
-------------
- --------
17,703,785
16,100
-------------
- --------
Transportation Facilities Revenue (29.7%)
5,000 Denver City & County, Colorado, Airport Refg Ser 2000 A
(AMT) (Ambac).......................................... 6.00 11/15/18 5,586,400
5,000 Hillsborough County Port District, Florida, Tampa Port
Authority Refg Ser 1995 (AMT) (FSA).................... 5.75 06/01/13 5,193,800
Miami Dade County, Florida,
2,155 Miami Int'l Airport Refg Ser 2003 B (AMT) (MBIA)....... 5.25 10/01/18 2,331,020
2,270 Miami Int'l Airport Refg Ser 2003 B (AMT) (MBIA)....... 5.25 10/01/19 2,444,881
5,000 Atlanta, Georgia, Airport Ser 2004 C (FSA)............... 5.00 01/01/33 5,160,350
5,000 Hawaii, Airports Refg Ser 2001 (AMT) (FGIC).............. 5.25 07/01/21 5,247,550
2,000 Chicago, Illinois, O' Hare Int'l Airport Third Lien Ser
2003 (AMT) (FSA)....................................... 5.75 01/01/23 2,197,880
4,000 Regional Transportation Authority, Illinois, Refg Ser
1999 (FSA)............................................. 5.75 06/01/21 4,812,800
2,500 Maryland Economic Development Corporation, Maryland
Aviation Admin Ser 2003 (AMT) (FSA).................... 5.375 06/01/22 2,677,100
Massachusetts,
5,000 Special Obligation 2002 Ser A (FGIC)................... 5.375 06/01/18 5,621,700
2,500 Special Obligation 2002 Ser A (FGIC)................... 5.375 06/01/19 2,798,125
5,000 Minneapolis - St Paul Metropolitan Airports Commission,
Minnesota, Ser 2001 C (FGIC)........................... 5.25 01/01/32 5,274,200
5,000 Nevada Department of Business & Industry, Las Vegas
Monorail 1st Tier Ser 2000 (Ambac)..................... 0.00 01/01/21 2,308,650
5,000 New Jersey Turnpike Authority, Ser 2003 A (Ambac)........ 5.00 01/01/30 5,172,100
Metropolitan Transportation Authority, New York,
6,805 State Service Contract Refg Ser 2002 B (MBIA).......... 5.50 07/01/20 7,696,863
10,000 Transportation Refg Ser 2002 A (Ambac)................. 5.50 11/15/17 11,429,201
2,000 Transportation Refg Ser 2002 A (FGIC).................. 5.00 11/15/25 2,088,100
Pennsylvania Turnpike Commission,
4,000 Ser R 2001 (Ambac)..................................... 5.00 12/01/26 4,165,320
4,000 Ser A 2004 (Ambac)..................................... 5.00 12/01/34 4,129,120
2,500 Port of Seattle, Washington, Ser 2001 B (AMT) (MBIA)..... 5.625 02/01/24 2,714,350
-------------
- --------
89,049,510
84,730
-------------
- --------
</Table>
See Notes to Financial Statements
9
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2004 continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
Water & Sewer Revenue (32.9%)
Phoenix Civic Improvement Corporation, Arizona,
$ 1,000 Water 2001 (FGIC)...................................... 5.50 % 07/01/23 $ 1,169,160
1,000 Water 2001 (FGIC)...................................... 5.50 07/01/24 1,164,720
5,000 San Diego County Water Authority, California, Ser 2004 A
(COPs) (FSA)........................................... 5.00 05/01/29 5,179,900
10,000 Tampa Bay Water, Florida, Ser 2001 B (FGIC).............. 5.00 10/01/31 10,219,600
2,000 Atlanta, Georgia, Water & Wastewater Ser 1999 A (FGIC)... 5.00 11/01/29 2,051,880
5,000 Honolulu City & County, Hawaii, Wastewater Ser 2001
(Ambac)................................................ 5.125 07/01/31 5,157,150
10,000 Louisville & Jefferson County Metropolitan Sewer
District, Kentucky, Ser 1999 A (FGIC).................. 5.75 05/15/33 11,182,900
3,800 Louisville Board of Water Works, Kentucky, Water Ser 2000
(FSA).................................................. 5.50 11/15/25 4,173,844
3,375 Massachusetts Water Resources Authority, 2000 Ser A
(FGIC)................................................. 6.00 08/01/15 3,904,740
5,000 Detroit, Michigan, Sewage Disposal Ser 2001 A (FGIC)..... 5.125 07/01/31 5,160,050
5,000 Grand Strand Water & Sewer Authority, South Carolina,
Refg Ser 2001 (FSA).................................... 5.00 06/01/31 5,115,450
Austin, Texas,
10,000 Water & Wastewater Refg Ser 2001 A (FSA)............... 5.125 05/15/27 10,355,300
2,000 Water & Wastewater Ser 2004 A (Ambac).................. 5.00 11/15/27 2,073,020
15,000 Houston, Texas, Combined Utility First Lien Refg 2004 Ser
A (FGIC)............................................... 5.25 05/15/23 16,221,599
San Antonio, Texas,
2,000 Water & Refg Ser 2002 (FSA)............................ 5.50 05/15/18 2,261,760
2,500 Water & Refg Ser 2002 (FSA)............................ 5.50 05/15/20 2,804,675
Wichita Falls, Texas,
2,000 Water & Sewer Ser 2001 (Ambac)......................... 5.375 08/01/20 2,217,540
3,000 Water & Sewer Ser 2001 (Ambac)......................... 5.375 08/01/24 3,262,230
5,000 King County, Washington, Sewer Refg 2001 (FGIC).......... 5.00 01/01/31 5,100,800
-------------
- --------
98,776,318
92,675
-------------
- --------
Other Revenue (3.7%)
6,000 California, Economic Recovery Ser 2004 A (MBIA).......... 5.00 07/01/15 6,688,500
1,000 Sales Tax Asset Receivable Corporation, New York, 2005
Ser A (Ambac) (WI)..................................... 5.00 10/15/29 1,037,730
3,000 Alexandria Industrial Development Authority, Virginia,
Institute for
Defense Analysis Ser 2000 A (Ambac).................... 5.90 10/01/30 3,418,860
-------------
- --------
11,145,090
10,000
-------------
- --------
Refunded (10.3%)
15,000 Delaware Health Facilities Authority, Medical Center of
Delaware Ser 1992 (MBIA) (ETM)......................... 6.25 10/01/06 16,218,150
3,000 Denver, Colorado, Civic Center Office Building Ser 2000 B
COPs (Ambac)........................................... 5.50 12/01/10+ 3,450,510
</Table>
See Notes to Financial Statements
10
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2004 continued
<Table>
<Caption>
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
- ---------------------------------------------------------------------------------------------------------
$ 5,000 Hawaii, 1999 Ser CT (FSA)................................ 5.875% 09/01/09+ $ 5,776,050
5,000 Detroit, Michigan, Water Supply Ser 1999 A (FGIC)........ 5.75 01/01/10+ 5,750,050
-------------
- --------
31,194,760
28,000
-------------
- --------
392,885 Total Tax-Exempt Municipal Bonds (Cost $388,216,577)........................ 420,908,025
-------------
- --------
Short Term Tax-Exempt Municipal Obligations (3.1%)
4,400 Missouri Health & Educational Facilities Authority, Cox
Health Ser 1997 (MBIA) (Demand 11/01/04)............... 1.73* 06/01/15 4,400,000
2,600 Nassau County Industrial Development Agency, New York,
1999 Cold Spring Harbor Lab (Demand 11/01/04).......... 1.71* 01/01/34 2,600,000
2,200 Geisinger Authority, Pennsylvania, Geisinger Health Ser
2000 (Demand 10/01/04)................................. 1.74* 08/01/28 2,200,000
-------------
- --------
9,200 Total Short Term Tax-Exempt Municipal Obligations (Cost $9,200,000)......... 9,200,000
-------------
- --------
</Table>
<Table>
$402,085 Total Investments (Cost $397,416,577) (a)(b)....................... 143.2% 430,108,025
========
Other Assets in Excess of Liabilities.............................. 0.1 380,865
Preferred Shares of Beneficial Interest............................ (43.3) (130,160,020)
----- ------------
Net Assets Applicable to Common Shareholders....................... 100.0% $300,328,870
===== ============
</Table>
See Notes to Financial Statements
11
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2004 continued
- ---------------------
<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 (Illiquid securities).
WI Security purchased on a when-issued basis.
+ 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 $8,425,160, which
represents 2.8% 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 security has been physically segregated in
connection with open futures contracts in the amount of
$547,500.
(a) Securities have been designated as collateral in an amount
equal to $82,024,915 in connection with open futures
contracts and securities purchased on a when-issued basis.
(b) The aggregate cost for federal income tax purposes is
$397,412,071. The aggregate gross unrealized appreciation is
$32,698,849 and the aggregate gross unrealized depreciation
is $2,895, resulting in net unrealized appreciation of
$32,695,954.
Bond Insurance:
- ---------------
Ambac Ambac Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
</Table>
Futures Contracts Open at October 31, 2004:
<Table>
<Caption>
DESCRIPTION, UNDERLYING
NUMBER OF DELIVERY MONTH FACE AMOUNT UNREALIZED
CONTRACTS LONG/SHORT AND YEAR AT VALUE DEPRECIATION
- --------- ---------- ---------------------- ------------------------ --------------
350 Short U.S. Treasury Notes 5 $(38,981,250) $ (333,832)
Year, December 2004
375 Short U.S. Treasury Notes 10 (42,585,938) (699,274)
Year, December 2004
-----------
Total unrealized depreciation................... $(1,033,106)
===========
</Table>
See Notes to Financial Statements
12
Morgan Stanley Insured Municipal Trust
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
October 31, 2004
<Table>
Assets:
Investments in securities, at value
(cost $397,416,577)....................................... $430,108,025
Cash........................................................ 837,425
Interest receivable......................................... 6,507,458
Prepaid expenses and other assets........................... 353,970
------------
Total Assets............................................ 437,806,878
------------
Liabilities:
Payable for:
Investments purchased................................... 6,711,137
Variation margin........................................ 217,188
Investment management fee............................... 152,866
Common shares of beneficial interest repurchased........ 110,019
Accrued expenses and other payables......................... 126,778
------------
Total Liabilities....................................... 7,317,988
------------
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............ $300,328,870
============
Composition of Net Assets Applicable to Common Shareholders:
Common shares of beneficial interest (unlimited shares
authorized of $.01
par value, 19,386,980 shares outstanding)................. $269,226,557
Net unrealized appreciation................................. 31,658,342
Accumulated undistributed net investment income............. 1,752,105
Accumulated net realized loss............................... (2,308,134)
------------
Net Assets Applicable to Common Shareholders............ $300,328,870
============
Net Asset Value Per Common Share
($300,328,870 divided by 19,386,980 common shares
outstanding)................................................ $15.49
============
</Table>
See Notes to Financial Statements
13
Morgan Stanley Insured Municipal Trust
FINANCIAL STATEMENTS continued
Statement of Operations
For the year ended October 31, 2004
<Table>
Net Investment Income:
Interest Income............................................. $21,850,467
-----------
Expenses
Investment management fee................................... 1,526,489
Auction commission fees..................................... 650,594
Transfer agent fees and expenses............................ 124,215
Professional fees........................................... 61,797
Shareholder reports and notices............................. 42,633
Custodian fees.............................................. 16,317
Auction agent fees.......................................... 15,621
Registration fees........................................... 15,155
Trustees' fees and expenses................................. 12,793
Other....................................................... 40,931
-----------
Total Expenses.......................................... 2,506,545
Less: expense offset........................................ (16,110)
-----------
Net Expenses............................................ 2,490,435
-----------
Net Investment Income................................... 19,360,032
-----------
Net Realized and Unrealized Gain (Loss):
Net Realized Gain (Loss) on:
Investments................................................. 1,136,856
Futures contracts........................................... (4,459,740)
-----------
Net Realized Loss....................................... (3,322,884)
-----------
Net Change in Unrealized Appreciation/Depreciation on:
Investments................................................. 5,981,180
Futures contracts........................................... (18,394)
-----------
Net Appreciation........................................ 5,962,786
-----------
Net Gain................................................ 2,639,902
-----------
Dividends to preferred shareholders from net investment
income.................................................... (2,089,610)
-----------
Net Increase................................................ $19,910,324
===========
</Table>
See Notes to Financial Statements
14
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, 2004 OCTOBER 31, 2003
---------------- ----------------
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 19,360,032 $ 19,781,850
Net realized gain (loss).................................... (3,322,884) 2,623,653
Net change in unrealized appreciation....................... 5,962,786 422,002
Dividends to preferred shareholders from net investment
income.................................................... (2,089,610) (2,746,820)
------------ ------------
Net Increase............................................ 19,910,324 20,080,685
------------ ------------
Dividends and Distributions to Common Shareholders from:
Net investment income....................................... (17,193,068) (18,365,967)
Net realized gain........................................... (1,587,770) (4,649,732)
------------ ------------
Total Dividends and Distributions....................... (18,780,838) (23,015,699)
------------ ------------
Decrease from transactions in common shares of beneficial
interest.................................................. (10,096,973) (8,099,350)
------------ ------------
Net Decrease............................................ (8,967,487) (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 $1,752,105 and $1,674,806, respectively)................. $300,328,870 $309,296,357
============ ============
</Table>
See Notes to Financial Statements
15
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2004
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 broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or
16
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2004 continued
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 total 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, 2004 aggregated
$57,656,260 and $74,088,587, respectively.
Morgan Stanley Trust, an affiliate of the Investment Manager, is the Trust's
transfer agent. At October 31, 2004, the Trust had transfer agent fees and
expenses payable of approximately $19,300.
At October 31, 2004, the Fund had an open purchase with another Morgan Stanley
fund, an affiliate of the Fund, of $2,099,769.
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 year ended October 31, 2004 included in
Trustees' fees and expenses in the Statement of Operations amounted to $6,665.
At October 31, 2004, the Trust had an accrued pension liability of $54,633 which
is included in accrued expenses in the
17
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2004 continued
Statement of Assets and Liabilities. On December 2, 2003, the Trustees voted to
close the plan to 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
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
</Table>
- ---------------------
* As of October 31, 2004.
** Includes rates set at auction during the year ended October 31, 2004.
Subsequent to October 31, 2004 and up through December 3, 2004, the Trust paid
dividends to Series TH and TU at rates ranging from 1.449% to 1.54% 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.
18
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2004 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 6.01%)*.......................................... (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 8.70%)*.......................................... (723,700) (7,237) (10,089,736)
---------- -------- ------------
Balance, October 31, 2004................................... 19,386,980 $193,870 $269,032,687
========== ======== ============
</Table>
- ---------------------
* The Trustees have voted to retire the shares purchased.
6. Dividends to Common Shareholders
On September 28, 2004, the Trust declared the following dividends from net
investment income:
<Table>
<Caption>
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
- --------- ----------------- -----------------
$0.0675 November 5, 2004 November 19, 2004
$0.0675 December 10, 2004 December 23, 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").
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
19
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2004 continued
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.
The tax character of distributions paid was as follows:
<Table>
<Caption>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 2004 OCTOBER 31, 2003
---------------- ----------------
Tax-exempt income........................................... $19,239,922 $21,112,235
Ordinary income............................................. 76,420 69,951
Long-term capital gains..................................... 1,587,770 4,632,173
----------- -----------
Total distributions......................................... $20,904,112 $25,814,359
=========== ===========
</Table>
As of October 31, 2004, the tax-basis components of accumulated earnings were as
follows:
<Table>
Undistributed tax-exempt income............................. $ 1,962,441
Undistributed long-term gains............................... --
-----------
Net accumulated earnings.................................... 1,962,441
Capital loss carryforward*.................................. (3,341,240)
Temporary differences....................................... (214,842)
Net unrealized appreciation................................. 32,695,954
-----------
Total accumulated earnings.................................. $31,102,313
===========
</Table>
- ---------------------
* As of October 31, 2004, the Trust had a net capital loss carryforward of
$3,341,240 which will expire on October 31, 2012 to offset future capital gains
to the extent provided by regulations.
As of October 31, 2004, the Trust had temporary book/tax differences primarily
attributable to book amortization of discounts on debt securities,
mark-to-market of open futures contracts and dividend payable and permanent
book/tax differences primarily attributable to tax adjustments on debt
securities sold by the Trust. To reflect reclassifications arising from the
permanent differences, accumulated undistributed net investment income was
charged and accumulated net realized loss was credited $55.
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,
---------------------------------------------------------------------
2004 2003 2002 2001 2000
--------- --------- --------- --------- ---------
Selected Per Share Data:
Net asset value, beginning of period...................... $15.38 $15.50 $15.74 $15.09 $ 14.91
------ ------ ------ ------ -------
Income (loss) from investment operations:
Net investment income*................................ 0.96 0.97 1.05 1.14 1.15
Net realized and unrealized gain...................... 0.16 0.14 0.15 0.79 0.14
Common share equivalent of dividends paid to preferred
shareholders*......................................... (0.11) (0.13) (0.18) (0.22) (0.24)
------ ------ ------ ------ -------
Total income from investment operations................... 1.01 0.98 1.02 1.71 1.05
------ ------ ------ ------ -------
Less dividends and distributions from:
Net investment income................................. (0.87) (0.90) (0.85) (0.93) (0.93)
Net realized gain..................................... (0.08) (0.23) (0.43) (0.13) --
------ ------ ------ ------ -------
Total dividends and distributions......................... (0.95) (1.13) (1.28) (1.06) (0.93)
------ ------ ------ ------ -------
Anti-dilutive effect of acquiring treasury shares*........ 0.05 0.03 0.02 0.00 0.06
------ ------ ------ ------ -------
Net asset value, end of period............................ $15.49 $15.38 $15.50 $15.74 $ 15.09
====== ====== ====== ====== =======
Market value, end of period............................... $13.88 $14.38 $14.15 $15.29 $14.188
====== ====== ====== ====== =======
Total Return+............................................. 3.21% 9.78% 1.14% 15.48% 10.87%
Ratios to Average Net Assets of Common Shareholders:
Total expenses (before expense offset).................... 0.82%(1) 0.80%(1) 0.76%(1) 0.71%(1) 0.71%(1)
Net investment income before preferred stock dividends.... 6.34% 6.26% 6.92% 7.42% 7.74%
Preferred stock dividends................................. 0.69% 0.87% 1.15% 1.43% 1.63%
Net investment income available to common shareholders.... 5.65% 5.39% 5.77% 5.99% 6.11%
Supplemental Data:
Net assets applicable to common shareholders, end of
period, in thousands..................................... $300,329 $309,296 $320,331 $331,834 $319,076
Asset coverage on preferred shares at end of period....... 331% 338% 346% 354% 345%
Portfolio turnover rate................................... 14% 11% 17% 29% 26%
</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>
See Notes to Financial Statements
21
Morgan Stanley Insured Municipal Trust
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004, 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 the standards of the Public Company
Accounting Oversight Board (United States). 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, 2004, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. 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, 2004, 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 14, 2004
2004 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended October 31, 2004, the Trust paid the
following per share amounts from tax-exempt income: $0.88 to
common shareholders, $830 to Series TU preferred shareholders
and $675 to Series TH preferred shareholders. For the year
ended October 31, 2004, the Trust paid the following per share
amounts from long-term capital gains: $0.07 to common
shareholders, $117 to Series TU preferred shareholders and $78
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 (63) Trustee Since April Private Investor; Director or 208
c/o Kramer Levin Naftalis & Frankel LLP 1994 Trustee of the Retail Funds
Counsel to the Independent Trustees (since April 1994) and the
919 Third Avenue Institutional Funds (since
New York, NY 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 (72) Trustee Since January Managing Director of Summit 208
c/o Summit Ventures LLC 1993 Ventures LLC; Director or
1 Utah Center Trustee of the Retail Funds
201 S. Main Street (since January 1993) and the
Salt Lake City, UT Institutional 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 (70) Trustee Since Retired; Director or Trustee 208
c/o Kramer Levin Naftalis & Frankel LLP September 1997 of the Retail Funds (since
Counsel to the Independent Trustees September 1997) and the
919 Third Avenue Institutional Funds (since
New York, NY 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
Independent Trustee Other Directorships Held by Trustee
- --------------------------------------- -----------------------------------
Michael Bozic (63) Director of Weirton Steel
c/o Kramer Levin Naftalis & Frankel LLP Corporation.
Counsel to the Independent Trustees
919 Third Avenue
New York, NY
Edwin J. Garn (72) Director of Franklin Covey (time
c/o Summit Ventures LLC management systems), BMW Bank of
1 Utah Center North America, Inc. (industrial
201 S. Main Street loan corporation), United Space
Salt Lake City, UT 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 (70) Director of The PMI Group Inc.
c/o Kramer Levin Naftalis & Frankel LLP (private mortgage insurance);
Counsel to the Independent Trustees Trustee and Vice Chairman of The
919 Third Avenue Field Museum of Natural History;
New York, NY 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 (55) Trustee Since July Senior Partner, Johnson Smick 208
c/o Johnson Smick International, Inc. 1991 International, Inc., a
2099 Pennsylvania Avenue, N.W. consulting firm; Chairman of
Suite 950 the Audit Committee and
Washington, D.C. Director or Trustee of the
Retail Funds (since July 1991)
and the Institutional Funds
(since July 2003); 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 (62) Trustee Since July President, Kearns & Associates 209
PMB754 2003 LLC (investment consulting);
23852 Pacific Coast Highway Deputy Chairman of the Audit
Malibu, CA Committee and Director or
Trustee of the Retail Funds
(since July 2003) and the
Institutional Funds (since
August 1994); previously
Chairman of the Audit
Committee of the Institutional
Funds (October 2001-July
2003); formerly CFO of the J.
Paul Getty Trust.
Michael E. Nugent (68) Trustee Since July General Partner of Triumph 208
c/o Triumph Capital, L.P. 1991 Capital, L.P., a private
445 Park Avenue investment partnership;
New York, NY Chairman of the Insurance
Committee and Director or
Trustee of the Retail Funds
(since July 1991) and the
Institutional Funds (since
July 2001); formerly Vice
President, Bankers Trust
Company and BT Capital
Corporation (1984-1988).
Fergus Reid (72) Trustee Since July Chairman of Lumelite Plastics 209
c/o Lumelite Plastics Corporation 2003 Corporation; Chairman of the
85 Charles Colman Blvd. Governance Committee and
Pawling, NY Director or Trustee of the
Retail Funds (since July 2003)
and the Institutional Funds
(since June 1992).
<Caption>
Name, Age and Address of
Independent Trustee Other Directorships Held by Trustee
- --------------------------------------- -----------------------------------
Dr. Manuel H. Johnson (55) Director of NVR, Inc. (home
c/o Johnson Smick International, Inc. construction); Chairman and Trustee
2099 Pennsylvania Avenue, N.W. of the Financial Accounting
Suite 950 Foundation (oversight organization
Washington, D.C. of the Financial Accounting
Standards Board); Director of RBS
Greenwich Capital Holdings
(financial holding company).
Joseph J. Kearns (62) Director of Electro Rent
PMB754 Corporation (equipment leasing),
23852 Pacific Coast Highway The Ford Family Foundation, and the
Malibu, CA UCLA Foundation.
Michael E. Nugent (68) Director of various business
c/o Triumph Capital, L.P. organizations.
445 Park Avenue
New York, NY
Fergus Reid (72) Trustee and Director of certain
c/o Lumelite Plastics Corporation investment companies in the
85 Charles Colman Blvd. JPMorgan Funds complex managed by
Pawling, NY J.P. Morgan Investment Management
Inc.
</Table>
24
Morgan Stanley Insured Municipal Trust
TRUSTEE AND OFFICER INFORMATION continued
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 (71) Chairman of Since July Chairman and Director or 208
c/o Morgan Stanley Trust the Board 1991 Trustee of the Retail Funds
Harborside Financial Center, and Trustee (since July 1991) and the
Plaza Two, Institutional Funds (since
Jersey City, NJ July 2003); formerly Chief
Executive Officer of the
Retail Funds (until September
2002).
James F. Higgins (56) Trustee Since June Director or Trustee of the 208
c/o Morgan Stanley Trust 2000 Retail Funds (since June 2000)
Harborside Financial Center, and the Institutional Funds
Plaza Two, (since July 2003); Senior
Jersey City, NJ 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).
<Caption>
Name, Age and Address of
Interested Trustee Other Directorships Held by Trustee
- ------------------------------------- -----------------------------------
Charles A. Fiumefreddo (71) None
c/o Morgan Stanley Trust
Harborside Financial Center,
Plaza Two,
Jersey City, NJ
James F. Higgins (56) Director of AXA Financial, Inc. and
c/o Morgan Stanley Trust The Equitable Life Assurance
Harborside Financial Center, Society of the United States
Plaza Two, (financial services).
Jersey City, NJ
</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. 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.).
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 (51) 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 and Director of the Distributor;
Chairman and Director of the Transfer Agent; Director of
various Morgan Stanley subsidiaries; President of the
Institutional Funds (since July 2003) and President of the
Retail Funds (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 (65) Executive Vice Since April Principal Executive Officer-Office of the Funds (since
1221 Avenue of the Americas President and 2003 November 2003); Managing Director of Morgan Stanley & Co.
New York, NY Principal Incorporated, Managing Director of Morgan Stanley; Managing
Executive Director, Chief Administrative Officer and Director of the
Officer Investment Manager and Morgan Stanley Services; Chief
Executive Officer and Director of the Transfer Agent;
Managing Director and Director of the Distributor; Executive
Vice President and Principal Executive Officer of the
Institutional Funds (since July 2003) and the Retail Funds
(since April 2003); Director of Morgan Stanley SICAV (since
May 2004); previously President and Director of the Retail
Funds (March 2001-July 2003) and Chief Global Operations
Officer and Managing Director of Morgan Stanley Investment
Management Inc.
Joseph J. McAlinden (61) Vice President Since July Managing Director and Chief Investment Officer of the
1221 Avenue of the Americas 1995 Investment Manager and Morgan Stanley Investment Management
New York, NY Inc.; 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).
Barry Fink (49) Vice President Since February General Counsel (since May 2000) and Managing Director
1221 Avenue of the Americas 1997 (since December 2000) of Morgan Stanley Investment
New York, NY Management; Managing Director (since December 2000),
Secretary (since February 1997) and Director (since July
1998) of the Investment Manager and Morgan Stanley Services;
Vice President of the Retail Funds; Assistant Secretary of
Morgan Stanley DW; Vice President of the Institutional Funds
(since July 2003); Managing Director, Secretary and Director
of the Distributor; previously Secretary (February 1997-July
2003) and General Counsel (February 1997-April 2004) of the
Retail Funds; Vice President and Assistant General Counsel
of the Investment Manager and Morgan Stanley Services
(February 1997-December 2001).
Amy R. Doberman (42) Vice President Since July Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas 2004 Management; Managing Director of Morgan Stanley Investment
New York, NY Management Inc. and the Investment Manager, Vice President
of the Institutional and Retail Funds (since July 2004);
previously, Managing Director and General
Counsel -- Americas, UBS Global Asset Management (July
2000-July 2004) and General Counsel, Aeltus Investment
Management, Inc. (January 1997-July 2000).
Carsten Otto (41) Chief Since October Executive Director and U.S. Director of Compliance for
1221 Avenue of the Americas Compliance 2004 Morgan Stanley Investment Management (since October 2004);
New York, NY Officer Executive Director of the Investment Adviser and Morgan
Stanley Investment Management Inc.; formerly Assistant
Secretary and Assistant General Counsel of the Morgan
Stanley Retail Funds.
</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**
- ----------------------------- --------------- -------------- ------------------------------------------------------------
Stefanie V. Chang (37) Vice President Since July Executive Director of Morgan Stanley & Co. Incorporated,
1221 Avenue of the Americas 2003 Morgan Stanley Investment Management Inc. and the Investment
New York, NY Manager; Vice President of the 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 US LLP).
Francis J. Smith (39) 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 Vice President of the Investment Manager and Morgan Stanley
Jersey City, NJ Officer since Services (August 2000-November 2001) and Senior Manager at
September 2002 PricewaterhouseCoopers LLP (January 1998-August 2000).
Thomas F. Caloia (58) 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 (37) Secretary Since July Executive Director of Morgan Stanley & Co. Incorporated,
1221 Avenue of the Americas 2003 Morgan Stanley Investment Management Inc. and the Investment
New York, NY Manager; Secretary of the 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
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
Chairman of the Board
Mitchell M. Merin
President
Ronald E. Robison
Executive Vice President and Principal Executive Officer
Joseph J. McAlinden
Vice President
Barry Fink
Vice President
Amy R. Doberman
Vice President
Carsten Otto
Chief Compliance Officer
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 REGISTERED PUBLIC ACCOUNTING FIRM
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.
(c) 2004 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Insured Municipal
Trust
Annual Report
October 31, 2004
[MORGAN STANLEY LOGO]
37974RPT-RA04-00903P-Y10/04
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) The Trust has amended its Code of Ethics during the period covered by
the shareholder report presented in Item 1 hereto to delete from the end of the
following paragraph on page 2 of the Code the phrase "to the detriment of the
Fund.":
"Each Covered Officer must not use his personal influence or personal
relationship improperly to influence investment decisions or financial reporting
by the Fund whereby the Covered Officer would benefit personally (directly or
indirectly)."
(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.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2004 REGISTRANT COVERED ENTITIES(1)
AUDIT FEES ................... $ 28,989 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES.. $ 5,752 (2) $ 5,067,400 (2)
TAX FEES ........... $ 4,455 (3) $ 545,053 (4)
ALL OTHER FEES ..... $ - $ -
TOTAL NON-AUDIT FEES ......... $ 10,207 $ 5,612,453
TOTAL ........................ $ 39,196 $ 5,612,453
2003 REGISTRANT COVERED ENTITIES(1)
AUDIT FEES ................... $ 27,379 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES.. $ 21,284 (2) $ 1,086,576 (2)
TAX FEES ........... $ 4,346 (3) $ 252,500 (4)
ALL OTHER FEES ..... $ - $ - (5)
TOTAL NON-AUDIT FEES ......... $ 25,630 $ 1,339,076
TOTAL ........................ $ 53,009 $ 1,339,076
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and any
entity controlling, controlled by or under common control with the Adviser
that provides ongoing services to the Registrant.
(2) Audit-Related Fees represent assurance and related services provided that
are reasonably related to the performance of the audit of the financial
statements of the Covered Entities' and funds advised by the Adviser or
its affiliates, specifically data verification and agreed-upon procedures
related to asset securitizations and agreed-upon procedures engagements.
(3) Tax Fees represent tax compliance, tax planning and tax advice services
provided in connection with the preparation and review of the Registrant's
tax returns.
(4) Tax Fees represent tax compliance, tax planning and tax advice services
provided in connection with the review of Covered Entities' tax returns.
(5) All other fees represent project management for future business
applications and improving business and operational processes.
2
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
APPENDIX A
AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
MORGAN STANLEY RETAIL AND INSTITUTIONAL FUNDS
AS ADOPTED AND AMENDED JULY 23, 2004,(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.
The SEC has issued rules specifying the types of services that an independent
auditor may not provide to its audit client, as well as the audit committee's
administration of the engagement of the independent auditor. The SEC's rules
establish two different approaches to pre-approving services, which the SEC
considers to be equally valid. Proposed services either: may be pre-approved
without consideration of specific case-by-case services by the Audit Committee
("general pre-approval"); or require the specific pre-approval of the Audit
Committee or its delegate ("specific pre-approval"). The Audit Committee
believes that the combination of these two approaches in this Policy will result
in an effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax and All
Other services that have the general pre-approval of the Audit Committee. The
term of any general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee considers and provides a different period and states
otherwise. The Audit Committee will annually review and pre-approve the services
that may be provided by the Independent Auditors without obtaining specific
pre-approval from the Audit Committee. The Audit Committee will add to or
subtract from the list of general pre-approved services from time to time, based
on subsequent determinations.
- ---------------------
(1) This Audit Committee Audit and Non-Audit Services Pre-Approval Policy and
Procedures (the "Policy"), adopted as of the date above, supersedes and
replaces all prior versions that may have been adopted from time to time.
3
The purpose of this Policy is to set forth the policy and procedures by which
the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes that
implementation of the Policy will not adversely affect the Independent Auditors'
independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may delegate
either type of pre-approval authority to one or more of its members. The member
to whom such authority is delegated must report, for informational purposes
only, any pre-approval decisions to the Audit Committee at its next scheduled
meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the specific
pre-approval of the Audit Committee. Audit services include the annual financial
statement audit and other procedures required to be performed by the Independent
Auditors to be able to form an opinion on the Fund's financial statements. These
other procedures include information systems and procedural reviews and testing
performed in order to understand and place reliance on the systems of internal
control, and consultations relating to the audit. The Audit Committee will
approve, if necessary, any changes in terms, conditions and fees resulting from
changes in audit scope, Fund structure or other items.
In addition to the annual Audit services engagement approved by the Audit
Committee, the Audit Committee may grant general pre-approval to other Audit
services, which are those services that only the Independent Auditors reasonably
can provide. Other Audit services may include statutory audits and services
associated with SEC registration statements (on Forms N-1A, N-2, N-3, N-4,
etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix B.1. All
other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
4. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements and, to the extent they are Covered Services, the Covered Entities or
that are traditionally performed by the Independent Auditors. Because the Audit
Committee believes that the provision of Audit-related services does not impair
the independence of the auditor and is consistent with the SEC's rules on
auditor independence, the Audit Committee may grant general pre-approval to
Audit-related services. Audit-related services include, among others, accounting
consultations related to accounting, financial reporting or disclosure matters
4
not classified as "Audit services"; assistance with understanding and
implementing new accounting and financial reporting guidance from rulemaking
authorities; agreed-upon or expanded audit procedures related to accounting
and/or billing records required to respond to or comply with financial,
accounting or regulatory reporting matters; and assistance with internal control
reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in Appendix B.2.
All other Audit-related services not listed in Appendix B.2 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide Tax
services to the Fund and, to the extent they are Covered Services, the Covered
Entities, such as tax compliance, tax planning and tax advice without impairing
the auditor's independence, and the SEC has stated that the Independent Auditors
may provide such services.
Pursuant to the preceding paragraph, the Audit Committee has pre-approved the
Tax Services in Appendix B.3. All Tax services in Appendix B.3 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
The Audit Committee has pre-approved the All Other services in Appendix B.4.
Permissible All Other services not listed in Appendix B.4 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be provided by
the Independent Auditors will be established annually by the Audit Committee.
Any proposed services exceeding these levels or amounts will require specific
pre-approval by the Audit Committee. The Audit Committee is mindful of the
overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services.
8. PROCEDURES
All requests or applications for services to be provided by the Independent
Auditors that do not require specific approval by the Audit Committee will be
submitted to the Fund's Chief Financial Officer and must include a detailed
description of the services to be
5
rendered. The Fund's Chief Financial Officer will determine whether such
services are included within the list of services that have received the general
pre-approval of the Audit Committee. The Audit Committee will be informed on a
timely basis of any such services rendered by the Independent Auditors. Requests
or applications to provide services that require specific approval by the Audit
Committee will be submitted to the Audit Committee by both the Independent
Auditors and the Fund's Chief Financial Officer, and must include a joint
statement as to whether, in their view, the request or application is consistent
with the SEC's rules on auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer to monitor
the performance of all services provided by the Independent Auditors and to
determine whether such services are in compliance with this Policy. The Fund's
Chief Financial Officer will report to the Audit Committee on a periodic basis
on the results of its monitoring. Both the Fund's Chief Financial Officer and
management will immediately report to the chairman of the Audit Committee any
breach of this Policy that comes to the attention of the Fund's Chief Financial
Officer or any member of management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an annual
basis to meet its responsibility to oversee the work of the Independent Auditors
and to assure the auditor's independence from the Fund, such as reviewing a
formal written statement from the Independent Auditors delineating all
relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
Morgan Stanley Retail Funds
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Van Kampen Asset Management
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
6
Morgan Stanley Institutional Funds
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Advisors Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Morgan Stanley & Co. Incorporated
Morgan Stanley Distribution, Inc.
Morgan Stanley AIP GP LP
Morgan Stanley Alternative Investment Partners LP
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services are determined to have a direct impact
on the operations or financial reporting of the Registrant. 100% of such
services were pre-approved by the audit committee pursuant to the Audit
Committee's pre-approval policies and procedures (attached hereto).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Trust has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act whose members are:
Michael Bozic, Edwin J. Garn, Wayne E. Hedien, Manual H. Johnson, Joseph J.
Kearns, Michael Nugent and Fergus Reid.
(b) Not applicable
Item 6.
See Item 1.
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.
7
Item 8. Closed-End Fund Repurchases
REGISTRANT PURCHASE OF EQUITY SECURITIES
(d) Maximum Number
(or Approximate
(c) Total Number of Dollar Value) of
(a) Total Shares (or Units) Shares (or Units)
Number of Purchased as Part that May Yet Be
Shares (or (b) Average of Publicly Purchased Under
Units) Price Paid per Announced Plans or the Plans or
Period Purchased Share (or Unit) Programs Programs
- ------------------------ --------- -------------- ------------------- -------------------
November 1, 2003 --
November 30, 2003 31,900.00 $14.3944 N/A N/A
December 1, 2003 --
December 31, 2003 53,200.00 $14.5399 N/A N/A
January 1, 2004 ---
January 31, 2004 58,400.00 $14.7677 N/A N/A
February 1, 2004 ---
February 29, 2004 62,000.00 $14.8337 N/A N/A
March 1, 2004 ---
March 31, 2004 48,600.00 $15.0062 N/A N/A
April 1, 2004 ---
April 30, 2004 51,300.00 $13.8780 N/A N/A
May 1, 2004 ---
May 31, 2004 109,500.00 $13.2096 N/A N/A
June 1, 2004 ---
June 30, 2004 86,500.00 $13.1775 N/A N/A
July 1, 2004 ---
July 31, 2004 67,300.00 $13.4441 N/A N/A
August 1, 2004 ---
August 31, 2004 60,300.00 $13.8015 N/A N/A
September 1, 2004 -
September 30, 2004 42,200.00 $14.9681 N/A N/A
October 1, 2004 ---
October 31, 2004 52,500.00 $13.8803 N/A N/A
---------- -------- --- ---
Total 723,700.00 $14.0751 N/A N/A
---------- -------- --- ---
8
Item 9. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 10 - 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.
(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 11 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.
9
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 14, 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
December 14, 2004
/s/ Francis Smith
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Francis Smith
Principal Financial Officer
December 14, 2004
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