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, 2006
Date of reporting period: October 31, 2006
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.
INCOME EARNED BY CERTAIN SECURITIES IN THE PORTFOLIO MAY BE SUBJECT TO THE
FEDERAL ALTERNATIVE MINIMUM TAX (AMT).
FUND REPORT
For the year ended October 31, 2006
MARKET CONDITIONS
Against the backdrop of strong economic growth, good employment data and
inflationary pressures stemming from rising oil prices, the Federal Open Market
Committee (the "Fed") continued its tightening campaign during the first eight
months of the reporting period, raising the federal funds target rate six times
to 5.25 percent at the end of June. In the months that followed, however,
economic growth moderated as consumer spending and housing weakened while
inflation concerns eased, prompting the Fed to keep its target rate unchanged
for the remainder of the period.
Short-term municipal bonds posted the lowest returns as Fed rate hikes pushed
yields in this portion of the market higher. Representative yields on two-year
AAA municipals increased from 3.10 percent to 3.50 percent during the period. In
contrast, long-term municipal bonds earned the best returns, with yields on
30-year AAA-rated municipal bonds declining from 4.60 percent to 4.10 percent.
Accordingly, the spread between long-term and short-term interest rates narrowed
and the slope of the municipal yield curve flattened dramatically.
Continued interest in the municipal market by institutional investors and
non-traditional buyers such as hedge funds strengthened demand for municipal
bonds. However, municipal bond issuance lagged last year's record pace by 12
percent in the first 10 months of 2006. The overall decline was due in great
part to a slowdown of refunding activity to roughly one half of the previous
year's rate. Issuers in California, Texas, Florida, New York and Illinois
accounted for about 40 percent of 2006 year-to-date underwriting volume. Bond
issues backed by insurance had close to a 50 percent market share.
Strong demand and lower supply helped municipal bond performance keep pace with
that of Treasuries. The municipal-to-Treasury yield ratio measures the relative
attractiveness of the two sectors. A decline in this ratio indicates that while
municipals outperformed Treasuries for the period measured, they also became
richer (less attractive) on a relative basis. During the 12-month reporting
period, the 30-year municipal-to-Treasury yield ratio declined from 92 to 87
percent. In comparison, this yield ratio reached a high of 102 percent in 2005.
PERFORMANCE ANALYSIS
For the 12-month period ended October 31, 2006, the net asset value (NAV) of
Morgan Stanley Insured Municipal Trust (IMT) increased from $15.23 to $15.37 per
share. Based on this change plus reinvestment of tax-free dividends totaling
$0.8025 per share and a long-term capital gain distribution of $0.1255 per
share, the Trust's total NAV return was 7.71 percent. IMT's value on the New
York Stock Exchange (NYSE) moved from $13.60 to $14.26 per share during the same
period. Based on this change plus reinvestment of dividends and distributions,
the Trust's total market return was 11.91 percent. IMT's NYSE market price was
at a 7.22 percent discount to its NAV. During the fiscal period, the Trust
purchased and retired 592,600 shares of common stock at a weighted average
market discount of 7.34 percent. Past performance is no guarantee of future
results.
2
Monthly dividends for the fourth quarter of 2006, declared in September,
decreased from $0.0675 to $0.06 per share. The dividend reflects the current
level of the Trust's net investment income. IMT's level of undistributed net
investment income was $0.046 per share on October 31, 2006, versus $0.115 per
share 12 months earlier.(1)
During the reporting period, the Trust's interest-rate posture continued to
reflect the anticipation of higher rates. As a result, at the end of October the
Trust's option-adjusted duration* including leverage was positioned at 9.6
years. To implement this strategy of reducing the portfolio's duration, U.S.
Treasury futures hedge and a BMA (Bond Market Association) interest rate swap
contract were used. This positioning helped total returns as interest rates rose
but tempered performance when rates declined. Purchases during the period
favored bonds with maturities of 20 years or longer. The Trust benefited from
this emphasis on the long end of the yield curve, as this segment of the market
performed strongly.
Another boost to performance came from issues that appreciated significantly
when they were pre-refunded. Reflecting a commitment to diversification, the
Trust's net assets of approximately $406 million, including preferred shares,
were invested among 13 long-term sectors and 77 credits. As of the close of the
period, the Trust's largest allocations were to the water and sewer,
transportation, and general obligation 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.
The Fed's policy of raising interest rates throughout much of the period
increased the cost of ARPS borrowing to the common shareholder, which reduced
the benefits of leverage. During this 12-month period, ARPS leverage contributed
approximately $0.10 per share to common-share earnings. The Trust had 2 ARPS
series totaling $130 million, representing 32 percent of net assets, including
preferred shares. ARPS rates ranged from 1.54 to 3.95 percent during the fiscal
period.
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
3
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.
----------------------------------------------------
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 sectors mentioned will continue to perform as
discussed herein or that securities in such sectors will be held by the Trust in
the future.
(1) Income earned by certain securities in the portfolio may be subject to the
federal alternative minimum tax (AMT).
* 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. Duration calculations are adjusted for leverage.
TOP FIVE SECTORS
Water & Sewer 36.9%
Transportation 34.8
General Obligation 24.4
Electric 15.1
Recreational Facilities 12.0
CREDIT ENHANCEMENTS
MBIA 27.2%
AMBAC 26.8
FGIC 23.1
FSA 20.3
XLCA 2.6
Data as of October 31, 2006. Subject to change daily. All percentages for top
five 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.
4
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Morgan Stanley trust provides a complete schedule of portfolio holdings in
its semiannual and annual reports within 60 days of the end of the trust's
second and fourth fiscal quarters. The semiannual reports and the annual reports
are filed electronically with the Securities and Exchange Commission (SEC) on
Form N-CSRS and Form N-CSR, respectively. Morgan Stanley also delivers the
semiannual and annual reports to trust shareholders and makes these reports
available on its public web site, www.morganstanley.com. Each Morgan Stanley
trust also files a complete schedule of portfolio holdings with the SEC for the
trust's first and third fiscal quarters on Form N-Q. Morgan Stanley does not
deliver the reports for the first and third fiscal quarters to shareholders, nor
are the reports posted to the Morgan Stanley public web site. You may, however,
obtain the Form N-Q filings (as well as the Form N-CSR and N-CSRS filings) by
accessing the SEC's web site, http://www.sec.gov. You may also review and copy
them at the SEC's public reference room in Washington, DC. Information on the
operation of the SEC's public reference room may be obtained by calling the SEC
at (800) SEC-0330. You can also request copies of these materials, upon payment
of a duplicating fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the public reference section of the SEC,
Washington, DC 20549-0102.
5
DISTRIBUTION BY MATURITY
(% of Long-Term Portfolio) As of October 31, 2006
WEIGHTED AVERAGE MATURITY: 18 YEARS (A)
0-5 8.00
6-10 10.00
11-15 22.00
16-20 18.00
21-25 18.00
26-30 19.00
30+ 5.00
(a) Where applicable maturities reflect mandatory tenders, puts and call dates.
Portfolio structure is subject to change.
Geographic Summary of Investments
Based on Market Value as a Percent of Total Investments
Alaska.................... 2.2%
Arizona................... 0.8
California................ 9.3
Colorado.................. 3.6
District of Columbia...... 1.1
Florida................... 4.3
Georgia................... 2.5
Hawaii.................... 4.1
Illinois.................. 11.9
Indiana................... 0.8
Iowa...................... 1.8
Kentucky.................. 3.7
Louisiana................. 0.5
Maryland.................. 0.7
Massachusetts............. 0.6
Michigan.................. 1.3
Minnesota................. 3.2
Missouri.................. 0.6
Nevada.................... 3.2
New Jersey................ 2.8
New Mexico................ 0.4
New York.................. 8.0
North Carolina............ 1.2
Ohio...................... 2.6
Oregon.................... 0.5
Pennsylvania.............. 3.0
South Carolina............ 4.6
Texas..................... 13.0
Utah...................... 0.8
Virginia.................. 0.8
Washington................ 6.1
Joint exemptions*......... 0.0
-----
Total+.................... 100.0%
=====
---------------------
* Joint exemptions have been included in each geographic location.
+ Does not include open short futures contracts with an underlying face amount
of $19,240,313 with a total unrealized depreciation of $155,182 and an
interest rate swap contract with unrealized depreciation of $155,167.
6
CALL AND COST (BOOK) YIELD STRUCTURE
(Based on Long-Term Portfolio) As of October 31, 2006
YEARS BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 6 YEARS
2007(a) 3.00
2008 1.00
2009 6.00
2010 14.00
2011 16.00
2012 14.00
2013 6.00
2014 11.00
2015 10.00
2016+ 19.00
COST (BOOK) YIELD(B) -- WEIGHTED AVERAGE BOOK YIELD: 5.2%
2007(a) 6.60
2008 5.70
2009 5.80
2010 5.50
2011 5.50
2012 4.90
2013 4.80
2014 5.00
2015 4.70
2016+ 4.90
(a) May include issues initially callable in previous years.
(b) Cost or "book" yield is the annual income earned on a portfolio investment
based on its original purchase price before the Trust's operating expenses.
For example, the Trust is earning a book yield of 6.6% on 3.0% of the
long-term portfolio that is callable in 2007.
Portfolio structure is subject to change.
7
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2006
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Tax-Exempt Municipal Bonds (150.0%)
General Obligation (24.4%)
$ 10,000 North Slope Borough, Alaska, Ser 2000 B (MBIA)........... 0.00 % 06/30/10 $ 8,729,600
3,000 Los Angeles, California, Ser 2004 A (MBIA)............... 5.00 09/01/24 3,194,700
Honolulu City & County, Hawaii,
5,000 Ser 2003 A (MBIA)++.................................... 5.25 03/01/25 5,395,675
5,000 Ser 2003 A (MBIA)++.................................... 5.25 03/01/26 5,357,900
Chicago, Illinois,
8,000 Refg Ser 1992 (Ambac).................................. 6.25 01/01/11 8,641,920
2,000 Refg 2001 A (MBIA)..................................... 0.00@ 01/01/21 1,800,860
2,000 Refg 2001 A (MBIA)..................................... 0.00@ 01/01/22 1,796,300
Illinois,
10,000 Ser 2001 (MBIA)........................................ 5.375 04/01/15 11,186,300
10,000 Ser 2001 (MBIA)........................................ 5.375 04/01/16 11,262,000
3,000 Brainerd Independent School District #181, Minnesota, Ser
2002 A (FGIC).......................................... 5.375 02/01/18 3,258,750
4,000 Clark County, Nevada, Transportation Impr Ltd Tax Ser
06/01/92 B (Ambac)..................................... 6.50 06/01/17 4,889,520
1,880 King County, Washington, Refg 1998 Ser B (MBIA).......... 5.25 01/01/34 1,928,936
-------------
--------
67,442,461
63,880
-------------
--------
Educational Facilities Revenue (5.3%)
2,000 Arizona Board of Regents, Arizona State University Ser
2004 COPs (Ambac)...................................... 5.00 09/01/30 2,105,060
University of California,
1,000 Limited Projects Ser 2005 B (FSA)...................... 5.00 05/15/30 1,057,510
2,000 Multi Purpose Ser Q (FSA).............................. 5.00 09/01/31 2,104,140
1,735 Orange County Educational Facilities Authority, Florida,
Rollins College Ser 2005 (Ambac)....................... 5.125 12/01/28 1,851,783
Fulton County Development Authority, Georgia,
900 Morehouse College Ser 2000 (Ambac)..................... 6.25 12/01/21 998,109
1,700 Morehouse College Ser 2000 (Ambac)..................... 5.875 12/01/30 1,855,550
2,500 University of North Carolina, Ser 2000 (Ambac)........... 5.25 10/01/20 2,663,075
2,000 University of North Carolina at Wilmington, Student
Housing Ser 2005 COPs (FGIC)........................... 5.00 06/01/36 2,098,800
-------------
--------
14,734,027
13,835
-------------
--------
Electric Revenue (15.1%)
2,000 Arkansas River Power Authority, Colorado, Power Ser 2006
(XLCA)................................................. 5.25 10/01/40 2,156,200
2,000 Missouri Joint Municipal Electrical Utility Commission,
Plum Point Ser 2006 (MBIA)............................. 5.00 01/01/25 2,138,640
1,000 Long Island Power Authority, New York, Ser 2006 A
(XLCA)................................................. 5.00 12/01/26 1,065,390
8
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2006 continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
South Carolina Public Service Authority, Santee Cooper
$ 9,325 Ser 2002 B (FSA)....................................... 5.375% 01/01/17 $ 10,046,102
2,000 Ser 2003 A (Ambac)..................................... 5.00 01/01/27 2,103,360
10,000 Lower Colorado River Authority, Texas, Refg Ser 1999 A
(FSA).................................................. 5.875 05/15/16 10,625,900
3,000 Cowlitz County Public Utility District # 1, Washington,
Production Ser 2006 (MBIA)............................. 5.00 09/01/31 3,180,360
10,000 Seattle, Washington, Light & Power Refg Rev 2001 (FSA)... 5.125 03/01/26 10,471,300
-------------
--------
41,787,252
39,325
-------------
--------
Hospital Revenue (4.6%)
3,000 Indiana Health Facilities Financing Authority, Community
Health Ser 2005 A (Ambac).............................. 5.00 05/01/35 3,151,470
2,000 Louisiana Public Facilities Authority, Baton Rouge
General Medical Center - FHA Insured Mtge Ser 2004
(MBIA)................................................. 5.25 07/01/33 2,137,000
4,000 Minneapolis, Minnesota, Fairview Health 2005 Ser D
(Ambac)................................................ 5.00 11/15/34 4,237,320
2,000 New York State Dormitory Authority, Montefiore
Hospital - FHA Insured Mtge Ser 2004 A (FGIC).......... 5.00 08/01/29 2,115,460
1,000 Medical University South Carolina, Hospital Authority,
FHA Insured Mtge Ser 2004 A (MBIA)..................... 5.25 02/15/25 1,074,920
-------------
--------
12,716,170
12,000
-------------
--------
Industrial Development/Pollution Control Revenue (4.3%)
5,000 Humboldt County, Nevada, Sierra Pacific Power Co Refg Ser
1987 (Ambac)........................................... 6.55 10/01/13 5,078,500
5,000 New York State Energy Research & Development Authority,
Brooklyn Union Gas Co 1996 Ser (MBIA)**................ 5.50 01/01/21 5,107,250
1,500 Delaware County Industrial Development Authority,
Pennsylvania, Aqua Inc Ser A 2005 (AMT) (FGIC)......... 5.00 11/01/37 1,567,650
-------------
--------
11,753,400
11,500
-------------
--------
Mortgage Revenue - Multi-Family (1.4%)
3,695 New Jersey Housing Mortgage Finance Authority, Home Buyer
-------- Ser 2000 CC (AMT) (MBIA)............................... 5.875 10/01/31 3,731,137
-------------
Public Facilities Revenue (2.7%)
2,000 Kern County Board of Education, California, Refg 2006 Ser
A COPs (MBIA).......................................... 5.00 06/01/31 2,122,660
1,500 Albuquerque, New Mexico, Gross Receipts Lodgers' Tax Refg
Ser 2004 A (FSA)....................................... 5.00 07/01/37 1,572,360
1,685 Oregon Department of Administrative Services, COPs Ser
2005 B (FGIC).......................................... 5.00 11/01/24 1,796,227
2,000 Pennsylvania Public School Building Authority,
Philadelphia School District Ser 2003 (FSA)............ 5.00 06/01/33 2,097,580
-------------
--------
7,588,827
7,185
-------------
--------
9
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2006 continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Recreational Facilities Revenue (12.0%)
$ 6,500 Denver Convention Center Hotel Authority, Colorado, Refg
Ser 2006 (XLCA)........................................ 5.00 % 12/01/35 $ 6,863,935
4,000 District of Columbia Ballpark, Ser 2006 B-1 (FGIC)....... 5.00 02/01/31 4,231,920
Iowa,
3,600 Vision Iowa Ser 2001 (MBIA)............................ 5.50 02/15/19 4,171,248
2,500 Vision Iowa Ser 2001 (MBIA)............................ 5.50 02/15/20 2,910,200
10,000 Hamilton County, Ohio, Sales Tax Ser 2000 (Ambac)........ 5.25 12/01/32 10,543,300
1,000 Omaha Convention Hotel Corporation, Nebraska, Ser 2002 A
(Ambac)................................................ 5.50 04/01/18 1,086,820
New York City Industrial Development Agency, New York,
1,000 Queens Baseball Stadium Ser 2006 (Ambac)............... 5.00 01/01/31 1,072,010
2,000 Yankee Stadium Ser 2006 (FGIC)......................... 5.00 03/01/46 2,121,080
-------------
--------
33,000,513
30,600
-------------
--------
Tax Allocation Revenue (0.9%)
2,390 San Jose Redevelopment Agency, California, Merged Area
-------- Ser 2002 (MBIA)........................................ 5.00 08/01/32 2,470,782
-------------
Transportation Facilities Revenue (34.8%)
5,000 Denver City & County, Colorado, Airport Refg Ser 2000 A
(AMT) (Ambac).......................................... 6.00 11/15/18 5,395,550
Miami Dade County, Florida,
2,155 Miami Int'l Airport Refg Ser 2003 B (AMT) (MBIA)....... 5.25 10/01/18 2,306,884
2,270 Miami Int'l Airport Refg Ser 2003 B (AMT) (MBIA)....... 5.25 10/01/19 2,422,930
5,000 Atlanta, Georgia, Airport Ser 2004 C (FSA)............... 5.00 01/01/33 5,241,200
5,000 Hawaii, Airports Refg Ser 2001 (AMT) (FGIC).............. 5.25 07/01/21 5,240,600
4,000 Regional Transportation Authority, Illinois, Refg Ser
1999 (FSA)............................................. 5.75 06/01/21 4,760,280
Chicago, Illinois,
3,000 O'Hare Int'l Airport, Ser 2005 A (MBIA)................ 5.25 01/01/25 3,267,210
2,000 O' Hare Int'l Airport Third Lien Ser 2003 (AMT)
(FSA).................................................. 5.75 01/01/23 2,208,240
2,500 Maryland Economic Development Corporation, Maryland
Aviation Administration Ser 2003 (AMT) (FSA)........... 5.375 06/01/22 2,679,075
8,000 Massachusetts Turnpike Authority, Metropolitan Highway
Ser 1997 A (MBIA)++.................................... 5.00 01/01/37 8,173,400
5,000 Minneapolis - St Paul Metropolitan Airports Commission,
Minnesota, Ser 2001 C (FGIC)........................... 5.25 01/01/32 5,251,100
5,000 Nevada Department of Business & Industry, Las Vegas
Monorail 1st Tier Ser 2000 (Ambac)..................... 0.00 01/01/21 2,702,700
2,000 New Jersey Transportation Trust Fund Authority, Ser 2005
C (FGIC)............................................... 5.25 06/15/20 2,193,700
5,000 New Jersey Turnpike Authority, Ser 2003 A (Ambac)........ 5.00 01/01/30 5,255,450
10
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2006 continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Metropolitan Transportation Authority, New York,
$ 6,805 State Service Contract Refg Ser 2002 B (MBIA).......... 5.50 % 07/01/20 $ 7,463,928
10,000 Transportation Refg Ser 2002 A (Ambac)................. 5.50 11/15/17 11,037,100
2,000 Transportation Refg Ser 2002 A (FGIC).................. 5.00 11/15/25 2,128,400
Pennsylvania Turnpike Commission,
4,000 Ser R 2001 (Ambac)..................................... 5.00 12/01/26 4,202,680
4,000 Ser A 2004 (Ambac)..................................... 5.00 12/01/34 4,241,200
3,000 Harris County, Texas, Toll Road Sr Lien Ser 2005 A
(FSA).................................................. 5.25 08/15/35 3,147,660
Port of Seattle, Washington, Passenger Facility
4,010 Ser 1998 A (MBIA)++.................................... 5.00 12/01/23 4,116,600
2,500 Ser 2001 B (AMT) (MBIA)................................ 5.625 02/01/24 2,643,125
-------------
--------
96,079,012
92,240
-------------
--------
Water & Sewer Revenue (36.9%)
1,000 Phoenix Civic Improvement Corporation, Arizona, Jr Lien
Wastewater Ser 2004 (MBIA)............................. 5.00 07/01/27 1,059,650
4,000 Eastern Municipal Water District, California, Water &
Sewer Refg Ser 2006 A COPs (MBIA)...................... 5.00 07/01/32 4,250,240
5,000 Los Angeles Department Water & Power, California, 2006
Ser A-1 (Ambac)........................................ 5.00 07/01/40 5,304,650
2,000 Sacramento County Sanitation Districts Financing
Authority, California, Sacramento Regional Ser 2006
(FGIC)................................................. 5.00 12/01/36 2,137,300
5,000 San Diego County Water Authority, California, Ser 2004 A
COPs (FSA)............................................. 5.00 05/01/29 5,292,650
10,000 Tampa Bay Water, Florida, Ser 2001 B (FGIC).............. 5.00 10/01/31 10,353,900
2,000 Atlanta, Georgia, Water & Wastewater Ser 1999 A (FGIC)... 5.00 11/01/29 2,050,120
10,000 Louisville & Jefferson County Metropolitan Sewer
District, Kentucky, Ser 1999 A (FGIC).................. 5.75 05/15/33 10,688,300
3,800 Louisville Board of Water Works, Kentucky, Water Ser 2000
(FSA).................................................. 5.50 11/15/25 4,049,964
5,000 Detroit, Michigan, Sewage Disposal Ser 2001 A (FGIC)..... 5.125 07/01/31 5,247,900
5,000 Grand Strand Water & Sewer Authority, South Carolina,
Refg Ser 2001 (FSA).................................... 5.00 06/01/31 5,208,450
Austin, Texas,
10,000 Water & Wastewater Refg Ser 2001 A & B (FSA)++......... 5.125 05/15/27 10,243,975
2,000 Water & Wastewater Ser 2004 A (Ambac).................. 5.00 11/15/27 2,114,460
15,000 Houston, Texas, Combined Utility First Lien Refg 2004 Ser
A (FGIC)............................................... 5.25 05/15/23 16,301,251
San Antonio, Texas,
2,000 Water & Refg Ser 2002 (FSA)............................ 5.50 05/15/18 2,177,200
2,500 Water & Refg Ser 2002 (FSA)............................ 5.50 05/15/20 2,716,300
2,000 Water & Refg Ser 2002 A (FSA).......................... 5.00 05/15/32 2,076,800
11
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2006 continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Wichita Falls, Texas,
$ 2,000 Water & Sewer Ser 2001 (Ambac)......................... 5.375% 08/01/20 $ 2,141,440
3,000 Water & Sewer Ser 2001 (Ambac)......................... 5.375 08/01/24 3,207,420
5,000 King County, Washington, Sewer Refg 2001 (FGIC).......... 5.00 01/01/31 5,184,950
-------------
--------
101,806,920
96,300
-------------
--------
Other Revenue (3.3%)
2,500 California, Economic Recovery, Ser 2004 A (MBIA)......... 5.00 07/01/15 2,735,175
6,000 Golden State Tobacco Securitization Corporation,
California, Enhanced Asset Backed Ser 2005 A (FGIC).... 5.00 06/01/38 6,331,620
-------------
--------
9,066,795
8,500
-------------
--------
Refunded (4.3%)
5,000 Honolulu City & County, Hawaii, Wastewater Ser 2001
(Ambac)................................................ 5.125 07/01/11+ 5,336,800
3,000 Utah Board of Regents, University of Utah - Huntsman
Cancer Institute Refg Ser 2000 A (MBIA)................ 5.50 04/01/10+ 3,209,670
3,000 Alexandria Industrial Development Authority, Virginia,
Institute for Defense Analysis Ser 2000 A (Ambac)...... 5.90 10/01/10+ 3,285,060
-------------
--------
11,831,530
11,000
-------------
--------
392,450 Total Tax-Exempt Municipal Bonds (Cost $390,573,418)........................ 414,008,826
-------------
--------
Short-Term Tax-Exempt Municipal Obligations (3.2%)
2,600 Illinois Finance Authority, Northwestern Memorial
Hospital Ser 2004 B-2 (Demand 11/01/06)................ 3.58* 08/15/38 2,600,000
200 Missouri State Health & Education Facilities Authority,
BJC Health Ser 2005 B (Demand 11/01/06)................ 3.65* 05/15/34 200,000
2,600 North Central Texas Health Facility Development
Corporation, Presbyterian Medical Center Ser 1985 D
(Demand 11/01/06)...................................... 3.60* 12/01/15 2,600,000
12
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2006 continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
$ 3,500 San Antonio Education Facilities Corporation, Texas,
Trinity University Ser 2002 (Demand 11/01/06).......... 3.65*% 06/01/33 $ 3,500,000
--------------
--------
8,900 Total Short-Term Tax-Exempt Municipal Obligations (Cost $8,900,000)......... 8,900,000
--------------
--------
401,350 Total Investments (Cost $399,473,418) (a) (b)...................... 422,908,826
--------------
--------
Floating Rate Note Obligations Related to Securities Held (-8.2%)
(22,760) Notes with interest rates ranging from 3.60% to 3.61% at October
31, 2006
and contractual maturities of collateral ranging from 12/01/23 to
01/01/37
(see Note 1D)++++ (Cost $(22,760,000))........................... (22,760,000)
-------------
--------
$378,590 Total Net Investments (Cost $376,713,418).......................... 145.0% 400,148,826
========
Other Assets in Excess of Liabilities.............................. 2.1 5,757,472
Preferred Shares of Beneficial Interest............................ (47.1) (130,026,848)
----- -------------
Net Assets Applicable to Common Shareholders....................... 100.0% $ 275,879,450
===== =============
13
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2006 continued
---------------------
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.
FHA Federal Housing Authority.
+ Prerefunded to call date shown.
@ Security is a "step-up" bond where the coupon increases on a
predetermined future date.
++ Underlying security related to inverse floaters entered into
by the Trust (See Note 1D).
++++ Floating rate note obligations related to securities held.
The interest rates shown reflect the rates in effect at
October 31, 2006
* 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
$90,000.
(a) Securities have been designated as collateral in an amount
equal to $19,150,792 in connection with open futures
contracts and an open interest rate swap contract.
(b) The aggregate cost for federal income tax purposes is
$376,707,995. The aggregate gross and net unrealized
appreciation is $23,440,831.
Bond Insurance:
---------------
Ambac Ambac Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
XLCA XL Capital Assurance Inc.
FUTURES CONTRACTS OPEN AT OCTOBER 31, 2006:
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE DEPRECIATION
-------------------------------------------------------------------------------------------------
90 Short U.S. Treasury Notes 5 Year, $(9,500,625) $ (53,685)
December 2006
90 Short U.S. Treasury Notes 10 Year, (9,739,688) (101,497)
December 2006
---------
Total Unrealized Depreciation.......................... $(155,182)
=========
INTEREST RATE SWAP CONTRACT OPEN AT OCTOBER 31, 2006:
NOTIONAL PAYMENTS
AMOUNT PAYMENTS RECEIVED BY TERMINATION UNREALIZED
COUNTERPARTY (000) MADE BY TRUST TRUST DATE DEPRECIATION
---------------------------------------------------------------------------------------------------
J.P. Morgan Chase Co. $10,000 Fixed Rate 3.85% Floating Rate BMA 12/19/16 $(155,167)
(Bond Market =========
Association)
14
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
October 31, 2006
Assets:
Investments in securities, at value
(cost $399,473,418)....................................... $422,908,826
Cash........................................................ 19,893
Interest receivable......................................... 6,306,161
Prepaid expenses and other assets........................... 26,694
------------
Total Assets............................................ 429,261,574
------------
Liabilities:
Unrealized depreciation on open swap contract............... 155,167
Floating rate note obligations related to securities held... 22,760,000
Payable for:
Investment advisory fee................................. 95,889
Common shares of beneficial interest repurchased........ 94,225
Variation margin........................................ 68,906
Administration fee...................................... 28,411
Transfer agent fee...................................... 1,461
Accrued expenses and other payables......................... 151,217
------------
Total Liabilities....................................... 23,355,276
------------
Preferred shares of beneficial interest (at liquidation
value) (1,000,000 shares authorized of
non-participating $.01 par value, 2,600 shares
outstanding).............................................. 130,026,848
------------
Net Assets Applicable to Common Shareholders............ $275,879,450
============
Composition of Net Assets Applicable to Common Shareholders:
Common shares of beneficial interest (unlimited shares
authorized of $.01 par value, 17,953,838 shares
outstanding).............................................. 249,291,771
Net unrealized appreciation................................. 23,125,059
Accumulated undistributed net investment income............. 819,999
Accumulated undistributed net realized gain................. 2,642,621
------------
Net Assets Applicable to Common Shareholders............ $275,879,450
============
Net Asset Value Per Common Share
($275,879,450 divided by 17,953,838 common shares
outstanding)................................................ $15.37
============
15
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
FINANCIAL STATEMENTS
Statement of Operations
For the year ended October 31, 2006
Net Investment Income:
Interest Income............................................. $20,172,724
-----------
Expenses
Investment advisory fee..................................... 1,095,451
Interest and residual trust expenses........................ 493,367
Auction commission fees..................................... 343,351
Administration fee.......................................... 324,578
Professional fees........................................... 78,542
Shareholder reports and notices............................. 40,050
Auction agent fees.......................................... 22,207
Listing fees................................................ 20,489
Transfer agent fees and expenses............................ 10,337
Trustees' fees and expenses................................. 10,144
Custodian fees.............................................. 17,448
Other....................................................... 59,910
-----------
Total Expenses.......................................... 2,515,874
Less: expense offset........................................ (9,718)
-----------
Net Expenses............................................ 2,506,156
-----------
Net Investment Income................................... 17,666,568
-----------
Net Realized and Unrealized Gain:
Realized Gain on:
Investments................................................. 2,037,119
Futures contracts........................................... 1,551,488
-----------
Net Realized Gain....................................... 3,588,607
-----------
Net Change in Unrealized Appreciation/Depreciation on:
Investments................................................. 3,042,602
Futures contracts........................................... (1,215,877)
Swap contract............................................... (155,167)
-----------
Net Appreciation........................................ 1,671,558
-----------
Net Gain................................................ 5,260,165
-----------
Dividends to preferred shareholders from net investment
income.................................................... (4,281,484)
-----------
Net Increase................................................ $18,645,249
===========
16
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005
---------------- ----------------
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 17,666,568 $ 18,266,199
Net realized gain........................................... 3,588,607 3,567,557
Net change in unrealized appreciation/depreciation.......... 1,671,558 (10,204,841)
Dividends to preferred shareholders from net investment
income.................................................... (4,281,484) (2,534,364)
------------ ------------
Net Increase............................................ 18,645,249 9,094,551
------------ ------------
Dividends and Distributions to Common Shareholders from:
Net investment income....................................... (14,581,080) (15,352,983)
Net realized gain........................................... (2,320,371) --
------------ ------------
Total Dividends and Distributions....................... (16,901,451) (15,352,983)
------------ ------------
Decrease from transactions in common shares of beneficial
interest.................................................. (8,335,163) (11,599,623)
------------ ------------
Net Decrease............................................ (6,591,365) (17,858,055)
Net Assets Applicable to Common Shareholders:
Beginning of period......................................... 282,470,815 300,328,870
------------ ------------
End of Period
(Including accumulated undistributed net investment income
of $819,999 and $2,130,731, respectively)................... $275,879,450 $282,470,815
============ ============
17
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2006
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; (3) interest rate
swaps are marked-to-market daily based upon quotations from market makers and
the change, if any, is recorded as unrealized appreciation or depreciation in
the Statement of Operations and (4) 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
18
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2006 continued
securities or other liquid portfolio securities equal to the minimum initial
margin requirements of the applicable futures exchange. Pursuant to the
contract, the Trust agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in the value of the contract. Such receipts
or payments known as variation margin are recorded by the Trust as unrealized
gains and losses. Upon 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. Floating Rate Note Obligations Related to Securities Held -- The Trust enters
into transactions in which it transfers to Dealer Trust ("Dealer Trust") fixed
rate bonds in exchange for cash and residual interests in the Dealer Trust's
assets and cash flows, which are in the form of inverse floating rate
investments. The Dealer Trust funds the purchases of the fixed rate bonds by
issuing floating rate notes to third parties and allowing the Trust to retain
residual interest in the bonds. The Trust enters into shortfall agreements with
the Dealer Trust which commit the Trust to pay the Dealer Trust, in certain
circumstances, the difference between the liquidation value of the fixed rate
bonds held by the Dealer Trust and the liquidation value of the floating rate
notes held by third parties, as well as any shortfalls in interest cash flows.
The residual interests held by the Trust (inverse floating rate investments)
include the right of the Trust (1) to cause the holders of the floating rate
notes to tender their notes at par at the next interest rate reset date, and (2)
to transfer the municipal bond from the Dealer Trust to the Trust, thereby
collapsing the Dealer Trust. The Trust accounts for the transfer of bonds to the
Dealer Trust as secured borrowings, with the securities transferred remaining in
the Trust's investment assets, and the related floating rate notes reflected as
Trust liabilities under the caption "floating rate note obligations" on the
Statement of Assets and Liabilities. The Trust records the interest income from
the fixed rate bonds under the caption "Interest Income" and records the
expenses related to floating rate note obligations and any administrative
expenses of the dealer trusts under the caption "Interest and residual trust
expenses" in the Trust's "Statement of Operations". The notes issued by the
Dealer Trust have interest rates that reset weekly and the floating rate note
holders have the option to tender their notes to the Dealer Trust for redemption
at par at each reset date. At October 31, 2006, Trust investments with a value
of $33,287,550 are held by the Dealer Trust and serve as collateral for the
$22,760,000 in floating rate note obligations outstanding at that date.
Contractual maturities of the floating rate note obligations and interest rates
in effect at October 31, 2006 are presented in the "Portfolio of Investments".
E. Interest Rate Swaps -- Interest rate swaps involve the exchange of
commitments to pay and receive interest based on a notional principal amount.
Net periodic interest payments to be received
19
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2006 continued
or paid are accrued daily and are recorded as realized gains or losses in the
Statement of Operations.
F. 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.
G. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
H. 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 Advisory/Administration Agreements
Pursuant to an Investment Advisory Agreement with Morgan Stanley Investment
Advisors Inc. (the "Investment Adviser"), the Trust pays an advisory fee,
calculated weekly and payable monthly, by applying the annual rate of 0.27% to
the Trust's weekly total net assets including preferred shares.
Pursuant to an Administration Agreement with Morgan Stanley Services Company
Inc. (the "Administrator"), an affiliate of the Investment Adviser, the Trust
pays an administration fee, calculated weekly and payable monthly, by applying
the annual rate of 0.08% 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, 2006 aggregated
$57,356,695 and $57,935,925, respectively. Included in the aforementioned
transactions is a sale of $1,036,720 with Morgan Stanley New York Tax-Free
Income Fund, with a net realized gain of $3,276.
Morgan Stanley Trust, an affiliate of the Investment Adviser and Administrator,
is the Trust's transfer agent.
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. 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. Aggregate
pension costs for
20
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2006 continued
the year ended October 31, 2006 included in Trustees' fees and expenses in the
Statement of Operations amounted to $4,465. At October 31, 2006, the Trust had
an accrued pension liability of $56,537 which is included in accrued expenses in
the Statement of Assets and Liabilities.
The Trust has 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 or she 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.
AMOUNT RESET RANGE OF
SERIES SHARES* IN THOUSANDS* RATE* DATE DIVIDEND RATES**
------ ------- ------------- ----- -------- ----------------
TU 800 $40,000 3.50% 11/08/06 1.54 - 3.95%
TH 1,800 90,000 3.50 11/03/06 2.59 - 3.75
---------------------
* As of October 31, 2006.
** For the year ended October 31, 2006.
Subsequent to October 31, 2006 and up through December 1, 2006 the Trust paid
dividends to Series TU and TH at rates ranging from 3.31% to 3.62% in the
aggregate amount of $405,730.
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.
21
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2006 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:
CAPITAL
PAID IN
EXCESS OF
SHARES PAR VALUE PAR VALUE
---------- --------- ------------
Balance, October 31, 2004................................... 19,386,980 $193,870 $269,032,687
Treasury shares purchased and retired (weighted average
discount 10.73%)*......................................... (840,542) (8,405) (11,591,218)
---------- -------- ------------
Balance, October 31, 2005................................... 18,546,438 185,465 257,441,469
Treasury shares purchased and retired (weighted average
discount 7.34%)*.......................................... (592,600) (5,926) (8,329,237)
---------- -------- ------------
Balance, October 31, 2006................................... 17,953,838 $179,539 $249,112,232
========== ======== ============
---------------------
* The Trustees have voted to retire the shares purchased.
6. Dividends to Common Shareholders
On September 26, 2006, the Trust declared the following dividends from net
investment income:
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ----------------- -----------------
November 3,
$0.06 2006............. November 17, 2006
December 8,
$0.06 2006............. December 22, 2006
7. Expense Offset
The expense offset represents a reduction of the fees and expenses for interest
earned on cash balances maintained by the Trust with the transfer agent and the
custodian.
8. Purposes of and Risks Relating to Certain Financial Instruments
The Trust may invest a portion of its assets in inverse floating rate
instruments, either through outright purchases of inverse floating rate
securities or through the transfer of bonds to a dealer trust in exchange for
cash and residual interests in the dealer trust. These investments are typically
used by the Trust in seeking to enhance the yield of the portfolio. These
instruments typically involve greater risks than a fixed rate municipal bond. In
particular, these instruments are acquired through leverage or may have leverage
embedded in them and therefore involve many of the risks associated with
leverage. Leverage is a speculative technique that may expose the Trust to
greater risk and increased costs. Leverage may cause the Trust's net asset value
to be more volatile than if it had not been leveraged because leverage tends to
magnify the effect of any increases or decreases in the value of the Trust's
portfolio securities. The use of leverage may also cause the Trust to liquidate
portfolio positions when it may not be advantageous to do so in order to satisfy
its obligations with respect to inverse floating rate instruments.
22
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2006 continued
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 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.
The Trust may enter into interest rate swaps and may purchase or sell interest
rate caps, floors and collars. The Trust expects to enter into these
transactions primarily to manage interest rate risk, hedge portfolio positions
and preserve a return or spread on a particular investment or portion of its
portfolio. The Trust may also enter into these transactions to protect against
any increase in the price of securities the Trust anticipates purchasing at a
later date. Interest rate swap transactions are subject to market risk, risk of
default by the other party to the transaction, risk of imperfect correlation and
manager risk. Such risks may exceed the related amounts shown in the Statements
of Assets and Liabilities.
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:
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005
---------------- ----------------
Tax-exempt income........................................... $18,887,056 $17,996,031
Long-term capital gains..................................... 2,320,367 --
----------- -----------
Total distributions......................................... $21,207,423 $17,996,031
=========== ===========
23
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2006 continued
As of October 31, 2006, the tax-basis components of accumulated earnings were as
follows:
Undistributed tax-exempt income............................. $ 898,841
Undistributed long-term gains............................... 2,487,492
-----------
Net accumulated earnings.................................... 3,386,333
Temporary differences....................................... (84,318)
Net unrealized appreciation................................. 23,285,664
-----------
Total accumulated earnings.................................. $26,587,679
===========
As of October 31, 2006, 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 undistributed net realized gain was credited $114,736.
10. New Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation 48, Accounting for Uncertainty in Income Taxes -- an
interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting
for income taxes by prescribing the minimum recognition threshold a tax position
must meet before being recognized in the financial statements. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The Trust will
adopt FIN 48 for the fiscal year ending 2008 and the impact to the Trust's
financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal
years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Trust's financial statement disclosures.
24
Morgan Stanley Insured Municipal Trust
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a common share of beneficial interest
outstanding throughout each period:
FOR THE YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
2006 2005 2004 2003 2002
--------- --------- --------- --------- ---------
Selected Per Share Data:
Net asset value, beginning of period...................... $15.23 $15.49 $15.38 $15.50 $15.74
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income*................................ 0.97 0.96 0.96 0.97 1.05
Net realized and unrealized gain (loss)............... 0.30 (0.35) 0.16 0.14 0.15
Common share equivalent of dividends paid to preferred
shareholders*......................................... (0.24) (0.13) (0.11) (0.13) (0.18)
------ ------ ------ ------ ------
Total income from investment operations................... 1.03 0.48 1.01 0.98 1.02
------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income................................. (0.80) (0.81) (0.87) (0.90) (0.85)
Net realized gain..................................... (0.13) -- (0.08) (0.23) (0.43)
------ ------ ------ ------ ------
Total dividends and distributions......................... (0.93) (0.81) (0.95) (1.13) (1.28)
------ ------ ------ ------ ------
Anti-dilutive effect of acquiring treasury shares*........ 0.04 0.07 0.05 0.03 0.02
------ ------ ------ ------ ------
Net asset value, end of period............................ $15.37 $15.23 $15.49 $15.38 $15.50
====== ====== ====== ====== ======
Market value, end of period............................... $14.26 $13.60 $13.88 $14.38 $14.15
====== ====== ====== ====== ======
Total Return+............................................. 11.91% 3.86% 3.21% 9.78% 1.14%
Ratios to Average Net Assets of Common Shareholders:
Total expenses (before expense offset).................... 0.91%(1) 0.78% 0.82%(1) 0.80%(1) 0.76%(1)
Total expenses (before expense offset, exclusive of
Interest and residual trust expenses) 0.74%(1) 0.78% 0.82%(1) 0.80%(1) 0.76%(1)
Net investment income before preferred stock dividends.... 6.43% 6.24% 6.34% 6.26% 6.92%
Preferred stock dividends................................. 1.56% 0.87% 0.69% 0.87% 1.15%
Net investment income available to common shareholders.... 4.87% 5.37% 5.65% 5.39% 5.77%
Supplemental Data:
Net assets applicable to common shareholders, end of
period, in thousands..................................... $275,879 $282,471 $300,329 $309,296 $320,331
Asset coverage on preferred shares at end of period....... 312% 317% 331% 338% 346%
Portfolio turnover rate................................... 14% 14% 14% 11% 17%
---------------------
* 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%.
25
See Notes to Financial Statements
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, 2006, 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. The Trust
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2006, by correspondence with the custodian
and brokers. 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, 2006, 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
January 12, 2007
26
Morgan Stanley Insured Municipal Trust
SHAREHOLDER VOTING RESULTS (UNAUDITED)
On October 25, 2006, 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 by all Shareholders:
# OF SHARES
------------------------------------------------
FOR WITHHELD ABSTAIN
------------------------------------------------
Frank L. Bowman............................................. 14,547,286 88,298 223,028
Kathleen A. Dennis.......................................... 14,551,940 83,644 223,028
Wayne E. Hedien............................................. 14,558,233 77,351 223,028
Joseph J. Kearns............................................ 14,560,192 75,392 223,028
Michael F. Klein............................................ 14,552,723 82,861 223,028
W. Allen Reed............................................... 14,540,989 94,595 223,028
Fergus Reid................................................. 14,564,537 71,047 223,028
Election of Trustees by Preferred Shareholders:
# OF SHARES
------------------------------------------------
FOR WITHHELD ABSTAIN
------------------------------------------------
Dr. Manuel H. Johnson....................................... 2,402 -- 82
Michael E. Nugent........................................... 2,402 -- 82
No broker "non-votes" were cast in connection with this proposal. Broker
"non-votes" are shares held in street name for which the broker indicates that
instructions have not been received from the beneficial owners or other persons
entitled to vote and for which the broker does not have discretionary voting
authority.
The following Trustees were not standing for reelection at this meeting: Michael
Bozic, Edwin J. Garn and James F. Higgins.
27
Morgan Stanley Insured Municipal Trust
REVISED INVESTMENT POLICY (UNAUDITED)
THE TRUSTEES APPROVED THE FOLLOWING INVESTMENT POLICY:
INTEREST RATE TRANSACTIONS -- The Trust may enter into interest rate swaps and
may purchase or sell interest rate caps, floors and collars. The Trust expects
to enter into these transactions primarily to manage interest rate risk, hedge
portfolio positions and preserve a return or spread on a particular investment
or portion of its portfolio. The Trust may also enter into these transactions to
protect against any increase in the price of securities the Trust anticipates
purchasing at a later date. The Trust does not intend to use these transactions
as speculative investments and will not enter into interest rate swaps or sell
interest rate caps or floors where it does not own or have the right to acquire
the underlying securities or other instruments providing the income stream the
Trust may be obligated to pay. Interest rate swaps involve the exchange by the
Trust with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed-rate payments.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a contractually-based principal amount from the party selling the
interest rate cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a contractually-based
principal amount from the party selling the interest rate floor. An interest
rate collar combines the elements of purchasing a cap and selling a floor. The
collar protects against an interest rate rise above the maximum amount but
foregoes the benefit of an interest rate decline below the minimum amount.
The Trust may enter into interest rate swaps, caps, floors and collars on either
an asset-based or liability-based basis, and will usually enter into interest
rate swaps on a net basis, i.e., the two payment streams are netted out, with
the Trust receiving or paying, as the case may be, only the net amount of the
two payments. The net amount of the excess, if any, of the Trust's obligations
over its entitlements with respect to each interest rate swap will be accrued on
a daily basis and the Trust segregates an amount of cash and/or liquid
securities having an aggregate net asset value at least equal to the accrued
excess. If the Trust enters into an interest rate swap on other than a net
basis, the Trust would segregate the full amount accrued on a daily basis of the
Trust's obligations with respect to the swap. Interest rate transactions do not
constitute senior securities under the 1940 Act when the Trust segregates assets
to cover the obligations under the transactions. The Trust will enter into
interest rate swap, cap or floor transactions only with counterparties approved
by the Trust's Board of Trustees. The Adviser will monitor the creditworthiness
of counterparties to the Trust's interest rate swap, cap, floor and collar
transactions on an ongoing basis. If there is a default by the other party to
such a transaction, the Trust will have contractual remedies pursuant to the
agreements related to the transaction. To the extent the Trust sells (i.e.,
writes) caps, floors and
28
Morgan Stanley Insured Municipal Trust
REVISED INVESTMENT POLICY (UNAUDITED) continued
collars, it will segregate cash and/or liquid securities having an aggregate net
asset value at least equal to the full amount, accrued on a daily basis, of the
Trust's net obligations with respect to the caps, floors or collars. The use of
interest rate swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of the
market values, interest rates and other applicable factors, the investment
performance of the Trust would diminish compared with what it would have been if
these investment techniques were not used. The use of interest rate swaps, caps,
collars and floors may also have the effect of shifting the recognition of
income between current and future periods.
These transactions do not involve the delivery of securities or other underlying
assets or principal. Accordingly, the risk of loss with respect to interest rate
swaps is limited to the net amount of interest payments that the Trust is
contractually obligated to make. If the other party to an interest rate swap
defaults, the Trust's risk of loss consists of the net amount of interest
payments that the Trust contractually is entitled to receive.
29
Morgan Stanley Insured Municipal Trust
TRUSTEE AND OFFICER INFORMATION (UNAUDITED)
Independent Trustees:
Number of
Portfolios in
Fund Complex
Position(s) Term of Office Overseen by
Name, Age and Address of Held with and Length of Principal Occupation(s) During Independent
Independent Trustee Registrant Time Served* Past 5 Years Trustee**
--------------------------------------- ----------- -------------- ------------------------------ -------------
Frank L. Bowman (61) Trustee Since August President and Chief Executive 163
c/o Kramer Levin Naftalis & Frankel LLP 2006 Officer of the Nuclear Energy
Counsel to the Independent Trustees Institute (policy
1177 Avenue of the Americas organization) (since February
New York, NY 10036 2005); Director or Trustee of
various Retail Funds and
Institutional Funds (since
August 2006) formerly
variously, Admiral in the U.S.
Navy, Director of Naval
Nuclear Propulsion Program and
Deputy Administrator-Naval
Reactors in the National
Nuclear Security
Administration at the U.S.
Department of Energy
(1996-2004). Honorary Knight
Commander of the Most
Excellent Order of the British
Empire.
Michael Bozic (65) Trustee Since April Private investor; Chairperson 173
c/o Kramer Levin Naftalis & Frankel LLP 1994 of the Valuation, Insurance
Counsel to the Independent Trustees and Compliance Committee
1177 Avenue of the Americas (since October 2006); Director
New York, NY 10036 or Trustee of the Retail Funds
(since April 1994) and the
Institutional Funds (since
July 2003); formerly
Chairperson of the Insurance
Committee (July 2006-September
2006); 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); variously
Chairman, Chief Executive
Officer, President and Chief
Operating Officer (1987-1991)
of the Sears Merchandise Group
of Sears, Roebuck & Co.
Name, Age and Address of Other Directorships Held by
Independent Trustee Independent Trustee
--------------------------------------- ------------------------------
Frank L. Bowman (61) Director of the National
c/o Kramer Levin Naftalis & Frankel LLP Energy Foundation, the U.S.
Counsel to the Independent Trustees Energy Association, the
1177 Avenue of the Americas American Council for Capital
New York, NY 10036 Formation and the Armed
Services YMCA of the USA.
Michael Bozic (65) Director of various business
c/o Kramer Levin Naftalis & Frankel LLP organizations.
Counsel to the Independent Trustees
1177 Avenue of the Americas
New York, NY 10036
30
Morgan Stanley Insured Municipal Trust
TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued
Number of
Portfolios in
Fund Complex
Position(s) Term of Office Overseen by
Name, Age and Address of Held with and Length of Principal Occupation(s) During Independent
Independent Trustee Registrant Time Served* Past 5 Years Trustee**
--------------------------------------- ----------- -------------- ------------------------------ -------------
Kathleen A. Dennis (53) Trustee Since August President, Cedarwood 163
c/o Kramer Levin Naftalis & Frankel LLP 2006 Associates (mutual fund
Counsel to the Independent Trustees consulting) (since July 2006);
1177 Avenue of the Americas Chairperson of the Money
New York, NY 10036 Market and Alternatives
Sub-Committee of the
Investment Committee (since
October 2006) and Director or
Trustee of various Retail
Funds and Institutional Funds
(since August 2006); formerly,
Senior Managing Director of
Victory Capital Management
(1993-2006).
Edwin J. Garn (74) Trustee Since January Consultant; Director or 173
1031 N. Chartwell Court 1993 Trustee of the Retail Funds
Salt Lake City, UT 84103 (since January 1993) and the
Institutional Funds (since
July 2003); Member of the Utah
Regional Advisory Board of
Pacific Corp. (utility
company); formerly Managing
Director of Summit Ventures
LLC (lobbying and consulting
firm) (2000-2004); 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 (72) Trustee Since Retired; Director or Trustee 173
c/o Kramer Levin Naftalis & Frankel LLP September 1997 of the Retail Funds; (Since
Counsel to the Independent Trustees September 1997) and the
1177 Avenue of the Americas Institutional Funds (since
New York, NY 10036 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).
Name, Age and Address of Other Directorships Held by
Independent Trustee Independent Trustee
--------------------------------------- ------------------------------
Kathleen A. Dennis (53) None.
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Trustees
1177 Avenue of the Americas
New York, NY 10036
Edwin J. Garn (74) Director of Franklin Covey
1031 N. Chartwell Court (time management systems), BMW
Salt Lake City, UT 84103 Bank of North America, Inc.
(industrial loan corporation),
Escrow Bank USA (industrial
loan corporation); United
Space Alliance (joint venture
between Lockheed Martin and
the Boeing Company) and Nuskin
Asia Pacific (multilevel
marketing); member of the
board of various civic and
charitable organizations.
Wayne E. Hedien (72) 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
1177 Avenue of the Americas The Field Museum of Natural
New York, NY 10036 History; director of various
other business and charitable
organizations.
31
Morgan Stanley Insured Municipal Trust
TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued
Number of
Portfolios in
Fund Complex
Position(s) Term of Office Overseen by
Name, Age and Address of Held with and Length of Principal Occupation(s) During Independent
Independent Trustee Registrant Time Served* Past 5 Years Trustee**
--------------------------------------- ----------- -------------- ------------------------------ -------------
Dr. Manuel H. Johnson (57) Trustee Since July Senior Partner, Johnson Smick 173
c/o Johnson Smick Group, Inc. 1991 International, Inc.,
888 16th Street, N.W. (consulting firm); Chairperson
Suite 740 of the Investment Committee
Washington, D.C. 20006 (since October 2006) and
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
Chairperson of the Audit
Committee (July 1991-September
2006); Vice Chairman of the
Board of Governors of the
Federal Reserve System and
Assistant Secretary of the
U.S. Treasury.
Joseph J. Kearns (64) Trustee Since July President, Kearns & Associates 174
c/o Kearns & Associates LLC 2003 LLC (investment consulting);
PMB754 Chairperson of the Audit
23852 Pacific Coast Highway Committee (since October 2006)
Malibu, CA 90265 and Director or Trustee of the
Retail Funds (since July 2003)
and the Institutional Funds
(since August 1994); formerly
Deputy Chairperson of the
Audit Committee (July 2003-
September 2006) and
Chairperson of the Audit
Committee of the Institutional
Funds (October 2001-July
2003); formerly CFO of the J.
Paul Getty Trust.
Name, Age and Address of Other Directorships Held by
Independent Trustee Independent Trustee
--------------------------------------- ------------------------------
Dr. Manuel H. Johnson (57) Director of NVR, Inc. (home
c/o Johnson Smick Group, Inc. construction); Director of KFX
888 16th Street, N.W. Energy; Director of RBS
Suite 740 Greenwich Capital Holdings
Washington, D.C. 20006 (financial holding company).
Joseph J. Kearns (64) Director of Electro Rent
c/o Kearns & Associates LLC Corporation (equipment
PMB754 leasing), The Ford Family
23852 Pacific Coast Highway Foundation, and the UCLA
Malibu, CA 90265 Foundation.
32
Morgan Stanley Insured Municipal Trust
TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued
Number of
Portfolios in
Fund Complex
Position(s) Term of Office Overseen by
Name, Age and Address of Held with and Length of Principal Occupation(s) During Independent
Independent Trustee Registrant Time Served* Past 5 Years Trustee**
--------------------------------------- ----------- -------------- ------------------------------ -------------
Michael F. Klein (47) Trustee Since August Chief Operating Officer and 163
c/o Kramer Levin Naftalis & Frankel LLP 2006 Managing Director, Aetos
Counsel to the Independent Trustees Capital, LLC (since March
1177 Avenue of the Americas 2000); Chairman of the
New York, NY 10036 Fixed-Income Sub-Committee of
the Investment Committee
(since October 2006) and
Director or Trustee (since
August 2006) of various Retail
Funds and Institutional Funds;
formerly Managing Director,
Morgan Stanley & Co. Inc. and
Morgan Stanley Dean Witter
Investment Management,
President, Morgan Stanley
Institutional Funds (June
1998-March 2000) and
Principal, Morgan Stanley &
Co. Inc. and Morgan Stanley
Dean Witter Investment
Management (August
1997-December 1999).
Michael E. Nugent (70) Chairman of Chairman of General Partner of Triumph 173
c/o Triumph Capital, L.P. the Board the Board Capital, L.P., a private
445 Park Avenue and Trustee since July investment partnership;
New York, NY 10022 2006 and Chairman of the Boards of the
Trustee since Retail Funds and Institutional
July 1991 Funds (since July 2006) and
Director or Trustee of the
Retail Funds (since July 1991)
and the Institutional Funds
(since July 2001); formerly
Chairperson of the Insurance
Committee (until July 2006);
Vice President, Bankers Trust
Company and BT Capital
Corporation (1984-1988).
Name, Age and Address of Other Directorships Held by
Independent Trustee Independent Trustee
--------------------------------------- ------------------------------
Michael F. Klein (47) Director of certain investment
c/o Kramer Levin Naftalis & Frankel LLP funds managed or sponsored by
Counsel to the Independent Trustees Aetos Capital LLC.
1177 Avenue of the Americas
New York, NY 10036
Michael E. Nugent (70) None.
c/o Triumph Capital, L.P.
445 Park Avenue
New York, NY 10022
33
Morgan Stanley Insured Municipal Trust
TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued
Number of
Portfolios in
Fund Complex
Position(s) Term of Office Overseen by
Name, Age and Address of Held with and Length of Principal Occupation(s) During Independent
Independent Trustee Registrant Time Served* Past 5 Years Trustee**
--------------------------------------- ----------- -------------- ------------------------------ -------------
W. Allen Reed (59) Trustee Since August Chairperson of the Equity Sub- 163
c/o Kramer Levin Naftalis & Frankel LLP 2006 Committee of the Investment
Counsel to the Independent Trustees Committee (since October 2006)
1177 Avenue of the Americas and Director or Trustee (since
New York, NY 10036 August 2006) of various Retail
Funds and Institutional Funds.
President and CEO of General
Motors Asset Management;
Formerly, Chairman and Chief
Executive Officer of the GM
Trust Bank and Corporate Vice
President of General Motors
Corporation (August 1994-
December 2005).
Fergus Reid (74) Trustee Since July Chairman of Lumelite Plastics 174
c/o Lumelite Plastics Corporation 2003 Corporation; Chairperson of
85 Charles Colman Blvd. the Governance Committee and
Pawling, NY 12564 Director or Trustee of the
Retail Funds (since July 2003)
and the Institutional Funds
(since June 1992).
Name, Age and Address of Other Directorships Held by
Independent Trustee Independent Trustee
--------------------------------------- ------------------------------
W. Allen Reed (59) Director of GMAC (financial
c/o Kramer Levin Naftalis & Frankel LLP services), GMAC Insurance
Counsel to the Independent Trustees Holdings and Temple-Inland
1177 Avenue of the Americas Industries (Packaging, Banking
New York, NY 10036 and forest products); member
of the Board of Executives of
the Morgan Stanley Capital
International Editorial Board;
Director of Legg Mason and
Director of various investment
fund advisory boards.
Fergus Reid (74) Trustee and Director of
c/o Lumelite Plastics Corporation certain investment companies
85 Charles Colman Blvd. in the JPMorgan Funds complex
Pawling, NY 12564 managed by J.P. Morgan
Investment Management Inc.
34
Morgan Stanley Insured Municipal Trust
TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued
Interested Trustee:
Number of
Portfolios in
Fund Complex
Position(s) Term of Office Overseen by
Name, Age and Address of Held with and Length of Principal Occupation(s) During Interested
Interested Trustee Registrant Time Served* Past 5 Years Trustee**
------------------------------------- ----------- -------------- ------------------------------ -------------
James F. Higgins (58) Trustee Since June Director or Trustee of the 173
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 07311 Advisor of Morgan Stanley
(since August 2000).
Name, Age and Address of Other Directorships Held by
Interested Trustee Interested Trustee
------------------------------------- ------------------------------
James F. Higgins (58) Director of AXA Financial,
c/o Morgan Stanley Trust Inc. and The Equitable Life
Harborside Financial Center Assurance Society of the
Plaza Two United States (financial
Jersey City, NJ 07311 services).
---------------------
* This is the earliest date the Trustee began serving the funds advised by
Morgan Stanley Investment Advisors Inc. (the "Investment Adviser") (the
"Retail Funds") or the funds advised by Morgan Stanley Investment Management
Inc. and Morgan Stanley AIP GP LP (the "Institutional Funds").
** The Fund Complex includes all open-end and closed-end funds (including all
of their portfolios) advised by the Investment Adviser and any funds that
have an investment adviser that is an affiliated person of the Investment
Adviser (including, but not limited to, Morgan Stanley Investment Management
Inc.) as of October 31, 2006.
35
Morgan Stanley Insured Municipal Trust
TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued
Executive Officers:
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
----------------------------- --------------- -------------- ------------------------------------------------------------
Ronald E. Robison (67) President and President President (since September 2005) and Principal Executive
1221 Avenue of the Americas Principal since Officer (since May 2003) of funds in the Fund Complex;
New York, NY 10020 Executive September 2005 President (since September 2005) and Principal Executive
Officer and Principal Officer (since May 2003) of the Van Kampen Funds; Managing
Executive Director, Director and/or Officer of the Investment Adviser
Officer since and various entities affiliated with the Investment Adviser;
May 2003 Director of Morgan Stanley SICAV (since May 2004). Formerly,
Executive Vice President (July 2003 to September 2005) of
funds in the Fund Complex and the Van Kampen Funds;
President and Director of the Institutional Funds (March
2001 to July 2003); Chief Administrative Officer of the
Investment Adviser; Chief Administrative Officer of Morgan
Stanley Services Company Inc.
J. David Germany (52) Vice President Since February Managing Director and (since December 2005) Chief Investment
Morgan Stanley Investment 2006 Officer -- Global Fixed Income of Morgan Stanley Investment
Management Ltd. Management; Managing Director and Director of Morgan Stanley
25 Cabot Square Investment Management Limited; Vice President of the Retail
Canary Wharf, London and Institutional Funds (since February 2006).
United Kingdom E144QA
Dennis F. Shea (53) Vice President Since February Managing Director and (since February 2006) Chief Investment
1221 Avenue of the Americas 2006 Officer -- Global Equity of Morgan Stanley Investment
New York, NY 10020 Management; Vice President of the Retail and Institutional
Funds (since February 2006). Formerly, Managing Director and
Director of Global Equity Research at Morgan Stanley.
Barry Fink (51) Vice President Since February Managing Director of Morgan Stanley Investment Management;
1221 Avenue of the Americas 1997 Managing Director of the Investment Adviser and various
New York, NY 10020 entities affiliated with the Investment Adviser; Vice
President of the Retail Funds and (since July 2003) the
Institutional Funds. Formerly, Secretary, General Counsel
and/or Director of the Investment Adviser and various
entities affiliated with the Investment Adviser; Secretary
and General Counsel of the Retail Funds.
Amy R. Doberman (44) Vice President Since July Managing Director and General Counsel, U.S. Investment
1221 Avenue of the Americas 2004 Management of Morgan Stanley Investment Management (since
New York, NY 10020 July 2004); Vice President of the Retail Funds and the
Institutional Funds (since July 2004); Vice President of the
Van Kampen Funds (since August 2004); Secretary (since
February 2006) and Managing Director (since July 2004) of
the Investment Adviser and various entities affiliated with
the Investment Adviser. Formerly, Managing Director and
General Counsel -- Americas, UBS Global Asset Management
(July 2000 to July 2004).
Carsten Otto (42) Chief Since October Managing Director and U.S. Director of Compliance for Morgan
1221 Avenue of the Americas Compliance 2004 Stanley Investment Management (since October 2004); Managing
New York, NY 10020 Officer Director and Chief Compliance Officer of Morgan Stanley
Investment Management. Formerly, Assistant Secretary and
Assistant General Counsel of the Retail Funds.
Stefanie V. Chang Yu (39) Vice President Since December Executive Director of the Investment Adviser and various
1221 Avenue of the Americas 1997 entities affiliated with the Investment Adviser; Vice
New York, NY 10020 President of the Retail Funds (since July 2002) and the
Institutional Funds (since December 1997). Formerly,
Secretary of various entities affiliated with the Investment
Adviser.
36
Morgan Stanley Insured Municipal Trust
TRUSTEE AND OFFICER INFORMATION (UNAUDITED) continued
Term of
Position(s) Office and
Name, Age and Address of Held with Length of
Executive Officer Registrant Time Served* Principal Occupation(s) During Past 5 Years
----------------------------- --------------- -------------- ------------------------------------------------------------
Francis J. Smith (41) Treasurer and Treasurer Executive Director of the Investment Adviser and various
c/o Morgan Stanley Trust Chief Financial since July entities affiliated with the Investment Adviser; Treasurer
Harborside Financial Center Officer 2003 and Chief and Chief Financial Officer of the Retail Funds (since July
Plaza Two Financial 2003). Formerly, Vice President of the Retail Funds
Jersey City, NJ 07311 Officer since (September 2002 to July 2003).
September 2002
Mary E. Mullin (39) Secretary Since June Executive Director of the Investment Adviser and various
1221 Avenue of the Americas 1999 entities affiliated with the Investment Adviser; Secretary
New York, NY 10020 of the Retail Funds (since July 2003) and the Institutional
Funds (since June 1999).
---------------------
* This is the earliest date the Officer began serving the Retail Funds or the
Institutional Funds.
In accordance with Section 303A.12(a) of the New York Stock Exchange Listed
Company Manual, the Trust's Annual CEO Certification certifying as to compliance
with NYSE's Corporate Governance Listing Standards was submitted to the Exchange
on November 14, 2006.
The Trust's Principal Executive Officer and Principal Financial Officer
Certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 were
filed with the Trust's N-CSR and are available on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
2006 FEDERAL TAX NOTICE (UNAUDITED)
During the year ended October 31, 2006, the Trust paid the
following per share amounts from tax-exempt income: $0.82 to
common shareholders, $1,308 to Series TU preferred
shareholders, and $1,357 to Series TH preferred shareholders.
For the year ended October 31, 2006, the Trust paid the
following per share amounts from long-term capital gains:
$0.11 to common shareholders, $280 to Series TU preferred
shareholders, and $329 to Series TH preferred shareholders.
37
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(This Page Intentionally Left Blank)
TRUSTEES
Frank L. Bowman
Michael Bozic
Kathleen A. Dennis
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael F. Klein
Michael E. Nugent
W. Allen Reed
Fergus Reid
OFFICERS
Michael E. Nugent
Chairman of the Board
Ronald E. Robison
President and Principal Executive Officer
J. David Germany
Vice President
Dennis F. Shea
Vice President
Barry Fink
Vice President
Amy R. Doberman
Vice President
Carsten Otto
Chief Compliance Officer
Stefanie V. Chang Yu
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
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 ADVISER
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) 2006 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Insured Municipal
Trust
Annual Report
October 31, 2006
[MORGAN STANLEY LOGO]
RA06-01111P-Y10/06-IMTRPT-ANR
Item 2. Code of Ethics.
(a) The Trust has adopted a code of ethics (the "Code of Ethics") that applies
to its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Trust or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Trust's Code of Ethics is attached hereto as Exhibit 12 A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Trust's Board of Trustees has determined that Joseph J. Kearns, an
"independent" Trustee, is an "audit committee financial expert" serving on its
audit committee. 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:
2
2006
COVERED
REGISTRANT ENTITIES(1)
---------- -----------
AUDIT FEES ............. $31,200 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES .. $ 6,096(2) $5,217,590(2)
TAX FEES ............ $ 4,900(3) $1,472,895(4)
ALL OTHER FEES ...... $ --(5) $ --(5)
TOTAL NON-AUDIT FEES ... $10,996 $6,690,485
TOTAL .................. $42,196 $6,690,485
2005
COVERED
REGISTRANT ENTITIES(1)
---------- -----------
AUDIT FEES ............. $30,448 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES .. $ 6,105(2) $3,215,745(2)
TAX FEES ............ $ 5,026(3) $ 24,000(4)
ALL OTHER FEES ...... $ --(5) $ --(5)
TOTAL NON-AUDIT FEES ... $11,131 $3,239,745
TOTAL .................. $41,579 $3,239,745
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.
3
(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.
4
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
5
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
6
rendered. The Trust'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 Trust'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 Trust'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
Trust's Chief Financial Officer will report to the Audit Committee on a periodic
basis on the results of its monitoring. Both the Trust'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 Trust'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 Trust, 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 Trust's investment adviser(s) and any entity
controlling, controlled by or under common control with the Trust's investment
adviser(s) that provides ongoing services to the Trust(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Trust's
audit committee must pre-approve non-audit services provided not only to the
Trust but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Trust. 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
7
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:
Frank Bowman, Wayne Hedien, Joseph Kearns, Michael Nugent and Allen Reed.
(b) Not applicable.
Item 6.
See Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
8
The Trust invests in exclusively non-voting securities and therefore this item
is not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
PORTFOLIO MANAGEMENT. As of the date of this report, the Trust is managed by
members of the Municipal Fixed Income team. The team consists of portfolio
managers and analysts. Current members of the team jointly and primarily
responsible for the day-to-day management of the Trust's portfolio and the
overall execution of the strategy of the Trust are James F. Willison, a Managing
Director of the Investment Adviser, Joseph R. Arcieri, an Executive Director of
the Investment Adviser and Robert W. Wimmel, a Vice President of the Investment
Adviser.
Mr. Willison has been associated with the Investment Adviser in an investment
management capacity since January 1980 and began managing the Trust at
inception. Mr. Arcieri has been associated with the Investment Adviser in an
investment management capacity since January 1986 and began managing the Trust
in February 1997. Mr. Wimmel has been associated with the Investment Adviser in
an investment management capacity since August 1996 and began managing the Trust
in January 2002.
The composition of the team may change from time to time.
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS
The following information is as of October 31, 2006:
Mr. Willison managed 22 mutual funds with a total of approximately $7.4 billion
in assets; no pooled investment vehicles other than mutual funds; and no other
accounts.
Mr. Arcieri managed 19 mutual funds with a total of approximately $5.7 billion
in assets; no pooled investment vehicles other than mutual funds; and no other
accounts.
Mr. Wimmel managed 25 mutual funds with a total of approximately $12.6 billion
in assets; no pooled investment vehicles other than mutual funds; and no other
accounts.
Because the portfolio managers manage assets for other investment companies,
pooled investment vehicles, and/or other accounts (including institutional
clients, pension plans and certain high net worth individuals), there may be an
incentive to favor one client over another resulting in conflicts of interest.
For instance, the Investment Adviser may receive fees from certain accounts that
are higher than the fee it receives from the Trust, or it may receive a
performance-based fee on certain accounts. In those instances, the portfolio
manager may have an incentive to favor the higher and/or performance-based fee
accounts over the Trust. The Investment Adviser has adopted trade allocation and
9
other policies and procedures that it believes are reasonably designed to
address these and other conflicts of interest.
PORTFOLIO MANAGER COMPENSATION STRUCTURE
Portfolio managers receive a combination of base compensation and discretionary
compensation, comprised of a cash bonus and several deferred compensation
programs described below. The methodology used to determine portfolio manager
compensation is applied across all funds/accounts managed by the portfolio
manager.
BASE SALARY COMPENSATION. Generally, portfolio managers receive base salary
compensation based on the level of their position with the Investment Adviser.
DISCRETIONARY COMPENSATION. In addition to base compensation, portfolio managers
may receive discretionary compensation.
Discretionary compensation can include:
- Cash Bonus.
- Morgan Stanley's Equity Incentive Compensation Program (EICP) awards -- a
mandatory program that defers a portion of discretionary year-end
compensation into restricted stock units or other awards based on Morgan
Stanley common stock that are subject to vesting and other conditions.
- Investment Management Alignment Plan (IMAP) awards -- a mandatory program
that defers a portion of discretionary year-end compensation and notionally
invests it in designated Funds advised by the Investment Adviser or its
affiliates. The award is subject to vesting and other conditions. Portfolio
managers must notionally invest a minimum of 25% to a maximum of 100% of
the IMAP deferral into a combination of the designated open-end mutual
funds they manage that are included in the IMAP fund menu, which may or may
not include the Trust.
- Voluntary Deferred Compensation Plans -- voluntary programs that permit
certain employees to elect to defer a portion of their discretionary
year-end compensation and directly or notionally invest the deferred
amount: (1) across a range of designated investment Funds, including Funds
advised by the Investment Adviser or its affiliates; and/or (2) in Morgan
Stanley stock units.
Several factors determine discretionary compensation, which can vary by
portfolio management team and circumstances. In order of relative importance,
these factors include:
- Investment performance. A portfolio manager's compensation is linked to the
pre-tax investment performance of the funds/accounts managed by the
portfolio manager. Investment performance is calculated for one-, three-
and five-year periods measured
10
against a fund's/account's primary benchmark, indices and/or peer groups
where applicable. Generally, the greatest weight is placed on the three-
and five-year periods.
- Revenues generated by the investment companies, pooled investment vehicles
and other accounts managed by the portfolio manager.
- Contribution to the business objectives of the Investment Adviser.
- The dollar amount of assets managed by the portfolio manager.
- Market compensation survey research by independent third parties.
- Other qualitative factors, such as contributions to client objectives.
- Performance of Morgan Stanley and Morgan Stanley Investment Management, and
the overall performance of the investment team(s) of which the portfolio
manager is a member.
SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS
As of October 31, 2006, the portfolio managers did not own any shares of the
Trust.
11
Item 9. Closed-End Fund Repurchases
REGISTRANT PURCHASE OF EQUITY SECURITIES
(c) Total
Number of
Shares (or (d) Maximum Number
Units) (or Approximate
Purchased as Dollar Value) of
(a) Total Part of Shares (or Units)
Number of (b) Average Publicly that May Yet Be
Shares (or Price Paid Announced Purchased Under
Units) per Share Plans or the Plans or
Period Purchased (or Unit) Programs Programs
------ ---------- ----------- ------------ ------------------
November 1, 2005 --
November 30, 2005 58,900 $13.5188 N/A N/A
December 1, 2005 --
December 31, 2005 108,500 13.5217 N/A N/A
January 1, 2006 --
January 31, 2006 137,000 14.1290 N/A N/A
February 1, 2006 --
February 28, 2006 79,400 14.4662 N/A N/A
March 1, 2006 --
March 31, 2006 52,100 14.4427 N/A N/A
April 1, 2006 --
April 30, 2006 44,600 14.2293 N/A N/A
May 1, 2006 --
May 31, 2006 35,400 14.1484 N/A N/A
June 1, 2006 --
June 30, 2006 22,100 14.2363 N/A N/A
July 1, 2006 --
July 31, 2006 3,500 14.2935 N/A N/A
August 1, 2006 --
August 31, 2006 -- -- N/A N/A
September 1, 2006 --
September 30, 2006 2,900 14.5938 N/A N/A
October 1, 2006 --
October 31, 2006 48,200 14.3132 N/A N/A
------- --------
Total 592,600 $14.1721 N/A N/A
======= ========
12
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. 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
provide reasonable assurance 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 ("SEC")
rules and forms or by the SEC staff, based upon such officers' evaluation of
these controls and procedures as of January 12, which is a date within 90 days
of the filing date of the report. The Trust's principal executive officer and
principal financial officer have also concluded that the Trust's disclosure
controls and procedures designed to ensure that information required to be
disclosed by the Trust in this Form N-CSR is accumulated and communicated to the
Trust's management, including its principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required
disclosure were effective.
Management of the Trust has determined that as of and prior to October 31, 2006,
the Trust's fiscal year end, the Trust had a deficiency in its internal control
over financial reporting related to the review, analysis and determination of
whether certain transfers of municipal securities qualified for sale accounting
under the provisions of Statement of Financial Accounting Standards No. 140
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." As a result, the Trust's independent registered public
accountants advised the Trust that this control deficiency represented a
material weakness in internal control over financial reporting as of October 31,
2006. Since October 31, 2006, and prior to the issuance of the Trust's annual
report, management has revised its disclosure controls and procedures and its
internal control over financial reporting in order to improve the controls'
effectiveness to ensure that transactions in transfers of municipal securities
are accounted for properly.
Management notes that other investment companies investing in similar
investments over the same time periods had been accounting for such investments
in a similar manner as the Trust. Accordingly, other investment companies are
also concluding that there was a material weakness in their internal control
over financial reporting of such investments. The changes in the Trust's
financial statements did not impact the net asset value of the Trust's shares or
the Trust's total return for any period.
(b) There were no changes in the Trust's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that have materially affected, or are reasonably likely to
materially affect, the Trust's internal control over financial reporting.
However, as discussed above, subsequent to October 31, 2006, the Trust's
internal control over financial reporting was revised.
Item 12. 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.
13
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
January 12, 2007
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
January 12, 2007
/s/ Francis Smith
-------------------------------------
Francis Smith
Principal Financial Officer
January 12, 2007
14