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)
522 Fifth Avenue, New York, New York 10036
(Address of principal executive offices) (Zip code)
Ronald E. Robison
522 Fifth Avenue, New York, New York 10036
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-296-6990
Date of fiscal year end: October 31, 2007
Date of reporting period: October 31, 2007
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, 2007
MARKET CONDITIONS
Fears stemming from a residential housing downturn persisted throughout the
12-month period, hitting a peak late in the second quarter of 2007. Confronted
with increasing delinquency rates on subprime loans, high-profile hedge fund
collapses, and a series of subprime mortgage related credit downgrades, markets
responded severely. The impact was exacerbated by an influx of forced sellers
looking to liquidate assets to help meet margin calls and capital withdrawals,
and a flight to quality ensued. This brought on greater concern about the impact
on the financial markets, the financial system, and the broader economy,
especially with regard to the effect on mortgage securities and mortgage
lenders.
In an effort to help ease the credit and liquidity crunch, the Federal Open
Market Committee (the "Fed") elected to cut the target federal funds by 50 basis
points in September and another 25 basis points in October, bringing the
benchmark overnight rate to 4.50 percent. At each of these meetings the Fed
acknowledged that while some upward pressure on inflation remained, the housing
correction could potentially intensify and restrain growth. However, at the
October meeting, they also noted that the upside risk to inflation roughly
balanced the downside risk to growth, setting expectations for no further cuts
in the target rate.
Throughout the 12-month period, U.S. Treasury yields fluctuated, with the yield
curve beginning the period relatively flat and ending the period steep. As the
yield curve steepened, shorter dated U.S. Treasury yields experienced the
greatest decline, while longer dated yields rose slightly. Overall, municipal
bond yields ended the period higher, but most of the yield increases occurred in
the intermediate to long maturity portion of the yield curve, while yields on
the front end of the curve declined. As a result, the curve steepened and the
spread between two-year and 30-year maturities widened to about 100 basis
points. For the one-year period, municipal bonds underperformed Treasury
securities.
So far, 2007 has been shaping up to be record breaking year for new issuance in
the municipal market, with the majority of it occurring in the development
sector. California and New York continued to lead the nation in new issuance of
municipal bonds.
PERFORMANCE ANALYSIS
For the 12-month period ended October 31, 2007, the net asset value (NAV) of
Morgan Stanley Insured Municipal Trust (IMT) decreased from $15.37 to $14.74 per
share. Based on the net asset value change plus reinvestment of tax-free
dividends totaling $0.715 per share and a long-term capital gain distribution of
$0.138910 per share, the Trust's total NAV return was 1.77 percent. IMT's value
on the New York Stock Exchange (NYSE) moved from $14.26 to $13.15 per share
during the same period. Based on this change plus reinvestment of dividends and
distributions, the Trust's total market return was -2.08 percent. IMT's NYSE
market price was at a 10.79 percent discount to its NAV. During the fiscal
period, the Trust purchased and retired 279,625 shares of common stock at a
weighted average market discount of 6.58 percent. Past performance is no
guarantee of future results.
Monthly dividends for the fourth quarter of 2007, declared in September,
decreased from $0.06 to $0.055 per share. The dividend reflects the current
level of the Trust's net investment income. IMT's level
2
of undistributed net investment income was $0.010 per share on October 31, 2007
versus $0.046 per share 12 months earlier.(1)
Throughout the 12-month period, the Trust maintained a lower interest rate
sensitivity (as measured by duration*), which was implemented through the use of
a U.S. Treasury futures hedge and a Bond Market Association (BMA) interest rate
swap. This defensive positioning benefited performance when rates were rising.
However, in the last months of the period, as yields at the long end of the
curve declined and the overall spread between short- and long-dated issues
narrowed, this positioning detracted from relative performance. With regard to
yield-curve positioning, we focused on the long end of the yield curve in an
effort to capture more attractive yields. This strategy was also beneficial
early in the period, but hindered overall performance as Fed easing in the
latter months pushed short-term rates lower, causing the short end of the curve
to outperform the long end for the overall period.
In terms of the Trust's sector positioning, an overweight to the hospital/life
care sector hindered returns. Over the course of the period, the performance of
this sector waned as spreads widened. Security selection in the tobacco and
health care sectors also hindered performance.
Conversely, an overweight to the public utility sector, particularly water and
sewer bonds, was additive to performance. The flight to quality that took place
during the period helped boost the performance of the more solid infrastructure
sectors such as utilities and the Trust's holdings there enhanced returns. The
Trust's overall emphasis on higher quality securities was also beneficial,
particularly in the latter months of the period when the higher rated segment of
the market outperformed lower rated bonds.
The Trust's procedure for reinvesting all dividends and distributions in common
shares is through purchases in the open market, This method helps support the
market value of the Trust's shares. In addition, we would like to remind you
that the Trustees have approved a procedure whereby the Trust may, when
appropriate, purchase shares in the open market or in privately negotiated
transactions at a price not above market value or net asset value, whichever is
lower at the time of purchase. The Trust may also utilize procedures to reduce
or eliminate the amount of Auction Rate Preferred Shares (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.
3
TOP FIVE SECTORS
General Obligation 17.3%
Public Power 13.3
Other Revenue 12.2
Transportation 12.0
Water & Sewer 11.5
LONG-TERM CREDIT ENHANCEMENTS
MBIA 31.7%
FGIC 24.0
AMBAC 22.2
FSA 19.0
XLCA 2.6
AGC 0.5
Data as of October 31, 2007. Subject to change daily. All percentages for top
five sectors are as a percentage of total investments. 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.
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.
4
DISTRIBUTION BY MATURITY
(% of Long-Term Portfolio) As of October 31, 2007
WEIGHTED AVERAGE MATURITY: 17 YEARS(a)
0-5 14
6-10 16
11-15 15
16-20 18
21-25 16
26-30 15
30+ 6
(a) Where applicable maturities reflect mandatory tenders, puts and call dates.
Portfolio structure is subject to change.
Summary of Investments by State Classification as of October 31, 2007
California................. 21.2%
Texas...................... 18.6
Illinois................... 16.9
New York................... 16.5
Washington................. 9.7
Hawaii..................... 8.1
South Carolina............. 7.0
Florida.................... 5.7
Kentucky................... 5.5
Colorado................... 5.4
Minnesota.................. 4.8
New Jersey................. 3.9
Georgia.................... 3.8
Pennsylvania............... 3.8
Alaska..................... 3.5%
Massachusetts.............. 3.1
Nevada..................... 2.9
Ohio....................... 2.8
Iowa....................... 2.6
Michigan................... 2.0
District of Columbia....... 1.6
North Carolina............. 1.6
Arizona.................... 1.2
Indiana.................... 1.2
Utah....................... 1.2
Virginia................... 1.2
Maryland................... 1.0
Louisiana.................. 0.8
Missouri................... 0.8%
Montana.................... 0.7
Oregon..................... 0.7
New Mexico................. 0.6
-----
Total Long-Term
Investments+............. 160.4
Short-Term Investment...... 2.5
Liability for Floating Rate
Note Obligations......... (15.1)
Other Assets in Excess of
Liabilities.............. 2.1
Preferred Shares of
Beneficial Interest...... (49.9)
-----
Net Assets Applicable to
Common Shareholders...... 100.0%
=====
---------------
+ Does not include open long/short futures contracts with an underlying face
amount of $69,286,283 with net unrealized appreciation of $76,939.
5
CALL AND COST (BOOK) YIELD STRUCTURE
(Based on Long-Term Portfolio) As of October 31, 2007
YEARS BONDS CALLABLE -- WEIGHTED AVERAGE CALL PROTECTION: 6 YEARS
2008(a) 2
2009 6
2010 11
2011 16
2012 13
2013 6
2014 12
2015 11
2016 12
2017+ 11
COST (BOOK) YIELD(B) -- WEIGHTED AVERAGE BOOK YIELD: 5.1%
2008(a) 6.60
2009 5.80
2010 5.70
2011 5.60
2012 4.90
2013 4.80
2014 5.00
2015 4.70
2016 4.70
2017+ 5.00
(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 2% of the
long-term portfolio that is callable in 2008.
Portfolio structure is subject to change.
6
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2007
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Tax-Exempt Municipal Bonds (160.4%)
Alaska (3.5%)
$ 10,000 North Slope Borough, Alaska, Ser 2000 B (MBIA Insd)....... 0.00 % 06/30/10 $ 9,068,600
------------
Arizona (1.2%)
2,000 Arizona Board of Regents, Arizona State University Ser
2004 COPs (AMBAC Insd).................................. 5.00 09/01/30 2,058,740
1,000 Phoenix Civic Improvement Corporation, Arizona, Jr Lien
Wastewater Ser 2004 (MBIA Insd)......................... 5.00 07/01/27 1,037,500
------------
3,096,240
------------
California (21.2%)
16,000 Anaheim Public Financing Authority, California, Anaheim
Electric Ser 2007-A (MBIA Insd)**....................... 4.50 10/01/37 15,401,200
2,500 California, Economic Recovery Ser 2004 A (MBIA Insd)...... 5.00 07/01/15 2,695,700
6,000 California, Refg Dtd 04/01/07 Ser 2007 (MBIA Insd)........ 4.25 08/01/33 5,544,000
4,000 Eastern Municipal Water District, Water & Sewer Refg Ser
2006 A COPs (MBIA Insd)................................. 5.00 07/01/32 4,110,160
6,000 Golden State Tobacco Securitization Corporation, Enhanced
Asset Backed Ser 2005 A (FGIC Insd)..................... 5.00 06/01/38 6,126,900
2,000 Kern County Board of Education, Refg 2006 Ser A COPs (MBIA
Insd)................................................... 5.00 06/01/31 2,056,840
3,000 Los Angeles, California, Ser 2004 A (MBIA Insd)........... 5.00 09/01/24 3,139,470
2,000 Sacramento County Sanitation District Financing Authority,
California, Sacramento Regional Ser 2006 (FGIC Insd).... 5.00 12/01/36 2,072,640
5,000 San Diego County Water Authority, California, Ser 2004 A
COPs (FSA Insd)......................................... 5.00 05/01/29 5,143,200
2,000 San Francisco City & County, City Buildings Ser 2007 A
COPs (FGIC Insd)........................................ 4.50 09/01/37 1,912,880
1,000 University of California, Limited Projects Ser 2005 B (FSA
Insd)................................................... 5.00 05/15/30 1,034,040
3,120 University of California, Ser 2007 J (FSA Insd)**......... 4.50 05/15/31 3,050,791
2,880 University of California, Ser 2007 J (FSA Insd)**......... 4.50 05/15/35 2,816,114
------------
55,103,935
------------
Colorado (5.4%)
2,000 Arkansas River Power Authority, Colorado, Power Ser 2006
(XLCA Insd)............................................. 5.25 10/01/40 2,091,900
5,000 Denver City & County, Colorado, Airport Refg Ser 2000 A
(AMT) (AMBAC Insd)...................................... 6.00 11/15/18 5,263,650
6,500 Denver Convention Center Hotel Authority, Colorado, Refg
Ser 2006 (XLCA Insd).................................... 5.00 12/01/35 6,648,980
------------
14,004,530
------------
7
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2007 continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
District of Columbia (1.6%)
$ 4,000 District of Columbia Ballpark, Ser 2006 B-1 (FGIC Insd)... 5.00 % 02/01/31 $ 4,101,640
------------
Florida (5.7%)
2,155 Miami Dade County, Florida, Miami Int'l Airport Refg Ser
2003 B (AMT) (MBIA Insd)................................ 5.25 10/01/18 2,254,001
2,270 Miami Dade County, Florida, Miami Int'l Airport Refg Ser
2003 B (AMT) (MBIA Insd)................................ 5.25 10/01/19 2,368,268
10,000 Tampa Bay Water, Florida, Ser 2001 B (FGIC Insd).......... 5.00 10/01/31 10,154,000
------------
14,776,269
------------
Georgia (3.8%)
900 Fulton County Development Authority, Georgia, Morehouse
College Ser 2000 (AMBAC Insd)........................... 6.25 12/01/10+ 981,594
1,700 Fulton County Development Authority, Georgia, Morehouse
College Ser 2000 (AMBAC Insd)........................... 5.875 12/01/10+ 1,835,626
5,000 Atlanta, Georgia, Airport Ser 2004 C (FSA Insd)........... 5.00 01/01/33 5,123,500
2,000 Atlanta, Georgia, Water & Wastewater Ser 1999 A (FGIC
Insd)................................................... 5.00 11/01/29 2,026,560
------------
9,967,280
------------
Hawaii (8.1%)
5,000 Hawaii, Airports Refg Ser 2001 (AMT) (FGIC Insd).......... 5.25 07/01/21 5,163,500
5,000 Honolulu City & County, Hawaii, Ser 2003 A (MBIA
Insd)**................................................. 5.25 03/01/25 5,307,100
5,000 Honolulu City & County, Hawaii, Ser 2003 A (MBIA
Insd)**................................................. 5.25 03/01/26 5,277,550
5,000 Honolulu City & County, Hawaii, Wastewater Ser 2001 (AMBAC
Insd)................................................... 5.125 07/01/11+ 5,277,950
------------
21,026,100
------------
Illinois (16.9%)
3,000 Chicago, Illinois, O'Hare Int'l Airport, Ser 2005 A (MBIA
Insd)................................................... 5.25 01/01/25 3,182,670
2,000 Chicago, Illinois, O' Hare Int'l Airport Third Lien Ser
2003 B-2 (AMT) (FSA Insd)............................... 5.75 01/01/23 2,139,840
2,000 Chicago, Illinois, Refg 2001 A (MBIA Insd)................ 0.00 01/01/21++ 1,855,260
2,000 Chicago, Illinois, Refg 2001 A (MBIA Insd)................ 0.00 01/01/22++ 1,851,300
8,000 Chicago, Illinois, Refg Ser 1992 (AMBAC Insd)............. 6.25 01/01/11 8,444,800
10,000 Illinois, Ser 2001 (MBIA Insd)............................ 5.375 04/01/15 11,019,500
10,000 Illinois, Ser 2001 (MBIA Insd)............................ 5.375 04/01/16 11,056,901
4,000 Regional Transportation Authority, Illinois, Refg Ser 1999
(FSA Insd).............................................. 5.75 06/01/21 4,620,920
------------
44,171,191
------------
Indiana (1.2%)
3,000 Indiana Health Facilities Financing Authority, Community
Health Ser 2005 A (AMBAC Insd).......................... 5.00 05/01/35 3,064,890
------------
8
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2007 continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Iowa (2.6%)
$ 3,600 Vision Iowa Ser 2001 (MBIA Insd).......................... 5.50 % 02/15/19 $ 4,049,856
2,500 Vision Iowa Ser 2001 (MBIA Insd).......................... 5.50 02/15/20 2,820,875
------------
6,870,731
------------
Kentucky (5.5%)
10,000 Louisville & Jefferson County Metropolitan Sewer District,
Kentucky, Ser 1999 A (FGIC Insd)........................ 5.75 05/15/33 10,455,500
3,800 Louisville Board of Water Works, Kentucky, Water Ser 2000
(FSA Insd).............................................. 5.50 11/15/25 3,966,250
------------
14,421,750
------------
Louisiana (0.8%)
2,000 Louisiana Public Facilities Authority, Baton Rouge General
Medical Center - FHA Insured Mtge Ser 2004 (MBIA
Insd)................................................... 5.25 07/01/33 2,070,880
------------
Maryland (1.0%)
2,500 Maryland Economic Development Corporation, Maryland
Aviation Administration Ser 2003 (AMT) (FSA Insd)....... 5.375 06/01/22 2,612,875
------------
Massachusetts (3.1%)
8,000 Massachusetts Turnpike Authority, Metropolitan Highway
1997 Ser A (MBIA Insd)**................................ 5.00 01/01/37 8,044,000
------------
Michigan (2.0%)
5,000 Detroit, Michigan, Sewage Disposal Ser 2001 A (FGIC
Insd)................................................... 5.125 07/01/11+ 5,277,950
------------
Minnesota (4.8%)
3,000 Brainerd Independent School District #181, Minnesota, Ser
2002 A (FGIC Insd)...................................... 5.375 02/01/18 3,208,110
4,000 Minneapolis, Minnesota, Fairview Health 2005 Ser D (AMBAC
Insd)................................................... 5.00 11/15/34 4,105,080
5,000 Minneapolis - St Paul Metropolitan Airports Commission,
Minnesota, Ser 2001 C (FGIC Insd)....................... 5.25 01/01/11+ 5,260,650
------------
12,573,840
------------
Missouri (0.8%)
2,000 Missouri Joint Municipal Electrical Utility Commission,
Plum Point Ser 2006 (MBIA Insd)......................... 5.00 01/01/25 2,082,160
------------
Montana (0.7%)
1,750 Montana Facility Finance Authority, Benefits Health System
(AGC Insd).............................................. 5.00 01/01/37 1,794,520
------------
9
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2007 continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Nevada (2.9%)
$ 4,000 Clark County, Nevada, Transportation Impr Ltd Tax Ser
06/01/92 B (AMBAC Insd)................................. 6.50 % 06/01/17 $ 4,766,560
5,000 Nevada Department of Business & Industry, Las Vegas
Monorail 1st Tier Ser 2000 (AMBAC Insd)................. 0.00 01/01/21 2,736,750
------------
7,503,310
------------
New Jersey (3.9%)
2,770 New Jersey Housing Mortgage Finance Authority, Home Buyer
Ser 2000 CC (AMT) (MBIA Insd)........................... 5.875 10/01/31 2,821,217
2,000 New Jersey Transportation Trust Fund Authority, Ser 2005 C
(FGIC Insd)............................................. 5.25 06/15/20 2,149,840
5,000 New Jersey Turnpike Authority, Ser 2003 A (AMBAC Insd).... 5.00 01/01/30 5,140,150
------------
10,111,207
------------
New Mexico (0.6%)
1,500 Albuquerque, New Mexico, Gross Receipts Lodgers' Tax Refg
Ser 2004 A (FSA Insd)................................... 5.00 07/01/37 1,540,515
------------
New York (16.5%)
2,000 New York State Dormitory Authority, Montefiore Hospital -
FHA Insured Mtge Ser 2004 (FGIC Insd)................... 5.00 08/01/29 2,064,260
1,000 New York City Industrial Development Agency, New York,
Queens Baseball Stadium Ser 2006 (AMBAC Insd)........... 5.00 01/01/31 1,039,060
2,000 New York City Industrial Development Agency, New York,
Yankee Stadium Ser 2006 (FGIC Insd)..................... 5.00 03/01/46 2,047,920
5,000 New York State Energy Research & Development Authority,
Brooklyn Union Gas Co 1996 Ser (MBIA Insd)*............. 5.50 01/01/21 5,014,350
1,000 Long Island Power Authority, New York, Ser 2006 A (XLCA
Insd)................................................... 5.00 12/01/26 1,048,670
6,805 Metropolitan Transportation Authority, New York, State
Service Contract Refg Ser 2002 B (MBIA Insd)............ 5.50 07/01/20 7,326,739
10,000 Metropolitan Transportation Authority, New York,
Transportation Refg Ser 2002 A (AMBAC Insd)............. 5.50 11/15/17 10,806,100
2,000 Metropolitan Transportation Authority, New York,
Transportation Refg Ser 2002 A (FGIC Insd).............. 5.00 11/15/25 2,079,220
12,000 Hudson Yards Infrastructure Corporation, New York, Ser
2006 A (MBIA Insd)...................................... 4.50 02/15/47 11,457,240
------------
42,883,559
------------
North Carolina (1.6%)
2,000 University of North Carolina at Wilmington, Student
Housing Ser 2005 COPs (FGIC Insd)....................... 5.00 06/01/36 2,050,000
2,030 University of North Carolina, Ser 2000 (AMBAC Insd)....... 5.25 10/01/10+ 2,150,318
------------
4,200,318
------------
10
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2007 continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Ohio (2.8%)
$ 1,965 Hamilton County, Ohio, Sales Tax 2000 (AMBAC Insd)........ 5.25 % 12/01/32 $ 2,035,052
5,000 Hamilton County, Ohio, Sales Tax 2000 (AMBAC Insd)........ 5.25 12/01/10+ 5,263,200
------------
7,298,252
------------
Oregon (0.7%)
1,685 Oregon Department of Administrative Services, COPs Ser
2005 B (FGIC Insd)...................................... 5.00 11/01/24 1,757,758
------------
Pennsylvania (3.8%)
1,500 Delaware County Industrial Development Authority,
Pennsylvania, Aqua Inc Ser A 2005 (AMT) (FGIC Insd)..... 5.00 11/01/37 1,505,895
4,000 Pennsylvania Turnpike Commission, Ser A 2004 (AMBAC
Insd)................................................... 5.00 12/01/34 4,120,000
4,000 Pennsylvania Turnpike Commission, Ser R 2001 (AMBAC
Insd)................................................... 5.00 12/01/26 4,153,000
------------
9,778,895
------------
South Carolina (7.0%)
1,000 Medical University Hospital Authority, South Carolina, FHA
Insured Mtge Ser 2004 A (MBIA Insd)..................... 5.25 02/15/25 1,051,450
2,000 South Carolina Public Service Authority, Santee Cooper Ser
2003 A (AMBAC Insd)..................................... 5.00 01/01/27 2,069,420
9,325 South Carolina Public Service Authority, Ser 2002 B (FSA
Insd)................................................... 5.375 01/01/17 9,889,256
5,000 Grand Strand Water & Sewer Authority, South Carolina, Refg
Ser 2001 (FSA Insd)..................................... 5.00 06/01/31 5,130,000
------------
18,140,126
------------
Texas (18.6%)
10,000 Lower Colorado River Authority, Texas, Refg Ser 1999 A
(FSA Insd).............................................. 5.875 05/15/16 10,438,200
2,000 San Antonio, Texas, Water & Refg Ser 2002 (FSA Insd)...... 5.50 05/15/18 2,145,220
2,500 San Antonio, Texas, Water & Refg Ser 2002 (FSA Insd)...... 5.50 05/15/20 2,677,225
2,000 San Antonio, Texas, Water & Refg Ser 2002 A (FSA Insd).... 5.00 05/15/32 2,039,360
3,000 Wichita Falls, Texas, Water & Sewer Ser 2001 (AMBAC
Insd)................................................... 5.375 08/01/11+ 3,196,440
10,000 Austin, Texas, Water & Wastewater Refg Ser 2001 A & B (FSA
Insd)**................................................. 5.125 05/15/27 10,115,525
2,000 Austin, Texas, Water & Wastewater Ser 2004 A (AMBAC
Insd)................................................... 5.00 11/15/27 2,070,100
15,000 Houston, Texas, Combined Utility First Lien Refg 2004 Ser
A (FGIC Insd)........................................... 5.25 05/15/23 15,953,850
------------
48,635,920
------------
Utah (1.2%)
3,000 Utah Board of Regents, University of Utah - Huntsman
Cancer Institute Refg Ser 2000 A (MBIA Insd)............ 5.50 04/01/10+ 3,170,760
------------
11
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2007 continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Virginia (1.2%)
$ 3,000 Alexandria Industrial Development Authority, Virginia,
Institute for Defense Analysis Ser 2000 A (AMBAC
Insd)................................................... 5.90 % 10/01/10+ $ 3,232,380
Washington (9.7%)
3,000 Cowlitz County, Public Utility District # 1, Washington,
Production Ser 2006 (MBIA Insd)......................... 5.00 09/01/31 3,100,410
10,000 Seattle, Washington, Light & Power Refg Rev 2001 (FSA).... 5.125 03/01/26 10,347,300
4,010 Port of Seattle, Washington, Passenger Facility Ser 1998 A
(MBIA Insd)**........................................... 5.00 12/01/23 4,074,600
2,500 Port of Seattle, Washington, Ser 2001 B (AMT) (MBIA
Insd)................................................... 5.625 02/01/24 2,589,125
5,000 King County, Washington, Sewer Refg 2001 (FGIC Insd)...... 5.00 01/01/31 5,114,100
25,225,535
Total Tax-Exempt Municipal Bonds (Cost $403,107,213)......................... 417,607,916
------------
NUMBER OF
SHARES (000)
------------
Short-Term Investment (a) (2.5%)
Investment Company
6,537 Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio - Institutional Class
(Cost $6,536,735)................................................................. 6,536,735
-----------
Total Investments (Cost $409,643,948)............................................... 424,144,651
-----------
12
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2007 continued
PRINCIPAL
AMOUNT IN
THOUSANDS VALUE
------------------------------------------------------------------------------------------------------------------------
Floating Rate Note and Dealer Trusts Obligations Related to Securities Held (-15.1%)
$(39,260) Notes with interest rates ranging from 3.23% to 3.51% at October 31, 2007 and
contractual maturities of collateral ranging from 12/01/23 to 10/01/37 (see Note
1D) ++++ (Cost $(39,260,000)) $(39,260,000)
------------
Total Net Investments (Cost $370,383,948) (b)(c).................................... 147.8% 384,884,651
Other Assets in Excess of Liabilities............................................... 2.1 5,548,367
Preferred Shares of Beneficial Interest............................................. (49.9) (130,000,000)
----- ------------
Net Assets Applicable to Common Shareholders........................................ 100.0% $260,433,018
===== ============
---------------------
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
predetermined future date.
** Underlying security related to inverse floater 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, 2007.
* A portion of this security has been physically segregated in
connection with open futures contracts in the amount of
$108,730.
(a) See Note 3 to the financial statements regarding investments
in Morgan Stanley Institutional Liquidity Tax-Exempt
Portfolio - Institutional Class.
(b) Securities have been designated as collateral in an amount
equal to $79,830,999 in connection with open futures
contracts.
(c) The aggregate cost for federal income tax purposes is
$370,377,547. The aggregate gross unrealized appreciation is
$15,959,355 and the aggregate gross unrealized depreciation
is $1,452,251 resulting in net unrealized appreciation of
$14,507,104.
Bond Insurance:
---------------
AGC Assured Guaranty Corporation.
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.
13
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - OCTOBER 31, 2007 continued
FUTURES CONTRACTS OPEN AT OCTOBER 31, 2007:
UNREALIZED
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE APPRECIATION
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE (DEPRECIATION)
------------------------------------------------------------------------------------------
237 Long U.S. Treasury Notes 10 $ 26,073,704 $183,449
Year
December 2007
25 Long U.S. Treasury Notes 20 2,814,844 (18,313)
Year December 2007
85 Short U.S. Treasury Notes 5 (9,124,219) (13,921)
Year December 2007
151 Short U.S. Treasury Notes 2 (31,273,516) (74,276)
Year December 2007
--------
Net Unrealized Appreciation..................... $ 76,939
========
14
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
October 31, 2007
Assets:
Investments in securities, at value (cost $403,107,213)..... $417,607,916
Investment in affiliate, at value (cost $6,536,735)......... 6,536,735
Receivable for:
Interest................................................ 5,941,198
Dividends from affiliate................................ 18,808
Prepaid expenses and other assets........................... 24,418
------------
Total Assets............................................ 430,129,075
------------
Liabilities:
Floating rate note and dealer trusts obligations............ 39,260,000
Payable for:
Investment advisory fee................................. 95,152
Common shares of beneficial interest repurchased........ 80,481
Variation margin........................................ 71,650
Administration fee...................................... 28,354
Transfer agent fee...................................... 1,839
Accrued expenses and other payables......................... 158,581
------------
Total Liabilities....................................... 39,696,057
------------
Preferred shares of beneficial interest (at liquidation
value) (1,000,000 shares authorized of non-participating
$.01 par value, 2,600 shares outstanding)................. 130,000,000
------------
Net Assets Applicable to Common Shareholders............ $260,433,018
============
Composition of Net Assets:
Common shares of beneficial interest (unlimited shares
authorized of $.01 par value, 17,674,213 shares
outstanding).............................................. $245,399,820
Net unrealized appreciation................................. 14,577,642
Accumulated undistributed net investment income............. 183,253
Accumulated undistributed net realized gain................. 272,303
------------
Net Assets Applicable to Common Shareholders............ $260,433,018
============
Net Asset Value Per Common Share
($260,433,018 divided by 17,674,213 common shares
outstanding)................................................ $14.74
============
15
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
FINANCIAL STATEMENTS continued
Statement of Operations
For the year ended October 31, 2007
Net Investment Income:
Income
Interest.................................................... $ 20,675,446
Dividends from affiliate.................................... 116,038
------------
Total Income............................................ 20,791,484
------------
Expenses
Interest and residual trust expenses........................ 1,712,181
Investment advisory fee..................................... 1,070,910
Auction commission fees..................................... 325,368
Administration fee.......................................... 317,307
Shareholder reports and notices............................. 79,038
Professional fees........................................... 65,921
Transfer agent fees and expenses............................ 24,274
Auction agent fees.......................................... 21,401
Registration fees........................................... 20,441
Custodian fees.............................................. 19,820
Trustees' fees and expenses................................. 12,104
Other....................................................... 69,513
------------
Total Expenses.......................................... 3,738,278
Less: amounts waived/reimbursed............................. (2,487)
Less: expense offset........................................ (8,019)
------------
Net Expenses............................................ 3,727,772
------------
Net Investment Income................................... 17,063,712
------------
Net Realized and Unrealized Gain (Loss):
Net Realized Gain (Loss) on:
Investments................................................. 326,490
Futures contracts........................................... (175,944)
Swap contract............................................... (33,373)
------------
Net Realized Gain....................................... 117,173
------------
Net Change in Unrealized Appreciation/Depreciation on:
Investments................................................. (8,934,705)
Futures contracts........................................... 232,121
Swap contract............................................... 155,167
------------
Net Change in Unrealized Appreciation/Depreciation...... (8,547,417)
------------
Net Loss................................................ (8,430,244)
------------
Dividends to preferred shareholders from net investment
income.................................................... (4,952,726)
------------
Net Increase................................................ $ 3,680,742
============
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, 2007 OCTOBER 31, 2006
---------------- ----------------
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 17,063,712 $ 17,666,568
Net realized gain........................................... 117,173 3,588,607
Net change in unrealized appreciation/depreciation.......... (8,547,417) 1,671,558
Dividends to preferred shareholders from net investment
income.................................................... (4,952,726) (4,281,484)
------------ ------------
Net Increase............................................ 3,680,742 18,645,249
------------ ------------
Dividends and Distributions to Common Shareholders from:
Net investment income....................................... (12,747,730) (14,581,080)
Net realized gain........................................... (2,487,493) (2,320,371)
------------ ------------
Total Dividends and Distributions....................... (15,235,223) (16,901,451)
------------ ------------
Decrease from transactions in common shares of beneficial
interest.................................................. (3,891,951) (8,335,163)
------------ ------------
Net Decrease............................................ (15,446,432) (6,591,365)
Net Assets Applicable to Common Shareholders:
Beginning of period......................................... 275,879,450 282,470,815
------------ ------------
End of Period
(Including accumulated undistributed net investment income
of $183,253 and $819,999, respectively)..................... $260,433,018 $275,879,450
============ ============
17
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2007
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; (4) investments in open-end mutual funds, including
the Morgan Stanley Institutional Liquidity Funds, are valued at the net asset
value as of the close of each business day; and (5) 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 and are included in interest income. Interest income is
accrued daily.
18
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2007 continued
C. Futures Contracts -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Trust is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Trust agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments known as
variation margin are recorded by the Trust as unrealized gains and losses. Upon
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 and Dealer Trusts Obligations Related to Securities
Held -- The Trust enters into transactions in which it transfers to Dealer
Trusts ("Dealer Trusts"), fixed rate bonds in exchange for cash and residual
interests in the Dealer Trusts' assets and cash flows, which are in the form of
inverse floating rate investments. The Dealer Trusts fund 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 Trusts which commit the Trust to pay the
Dealer Trusts, in certain circumstances, the difference between the liquidation
value of the fixed rate bonds held by the Dealer Trusts 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
Trusts to the Trust, thereby collapsing the Dealer Trusts. The Trust accounts
for the transfer of bonds to the Dealer Trusts 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 and dealer trusts 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 Trusts have interest rates that reset
weekly and the floating rate note holders have the option to tender their notes
to the Dealer Trusts for redemption at par at each reset date. At October 31,
2007, Trust investments with a value of $54,086,880 are held by the Dealer
Trusts and serve as collateral for the $39,260,000 in floating rate note and
dealer trusts obligations outstanding at that date. Contractual maturities of
the floating rate note obligations and interest rates in effect at October 31,
2007 are presented in the Portfolio of Investments.
19
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2007 continued
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 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.
Under an agreement between the Administrator and State Street Bank and Trust
Company ("State Street"), State Street provides certain administrative services
to the Trust. For such services, the Administrator pays State Street a portion
of the fee the Administrator receives from the Trust.
3. Security Transactions and Transactions With Affiliates
The Trust invests in Morgan Stanley Institutional Liquidity Tax-Exempt
Portfolio -- Institutional Class, an open-end management investment company
managed by the Investment Adviser. Investment advisory fees paid by the Trust
are reduced by an amount equal to the advisory and administrative services fees
paid by Morgan Stanley Institutional Liquidity Tax-Exempt Portfolio --
Institutional Class with respect to assets invested by the Trust in Morgan
Stanley Institutional Liquidity Tax-Exempt Portfolio -- Institutional Class. For
the year ended October 31, 2007, advisory fees paid were
20
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2007 continued
reduced by $2,487 relating to the Trust's investment in Morgan Stanley
Institutional Liquidity Tax-Exempt Portfolio -- Institutional Class. Income
distributions earned by the Trust are recorded as dividends from affiliate in
the Statement of Operations and totaled $116,038 for the year ended October 31,
2007. During the year ended October 31, 2007, cost of purchases and sales in
investments in Morgan Stanley Institutional Liquidity Tax-Exempt
Portfolio -- Institutional Class aggregated $17,890,146 and $11,353,411,
respectively.
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the year ended October 31, 2007 aggregated
$25,622,460 and $31,541,252, respectively.
Effective September 28, 2007, the transfer agent services previously provided to
the Trust by Morgan Stanley Trust was assumed by Computershare Trust Company,
N.A. (the "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 the year ended October 31, 2007, included in Trustees' fees
and expenses in the Statement of Operations amounted to $5,095. At October 31,
2007, the Trust had an accrued pension liability of $55,821 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,
21
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2007 continued
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 3.65% 11/07/07 3.45%- 3.90%
TH 1,800 90,000 3.59 11/02/07 3.31- 4.00
---------------------
* As of October 31, 2007.
** For the year ended October 31, 2007.
Subsequent to October 31, 2007 and up through December 7, 2007, the Trust paid
dividends to Series TU and TH at rates ranging from 3.50% to 4.60% in the
aggregate amount of $542,592.
The Trust is subject to certain restrictions relating to the preferred shares.
Failure to comply with these restrictions could preclude the Trust from
declaring any distributions to common shareholders or purchasing common shares
and/or could trigger the mandatory redemption of preferred shares at liquidation
value.
The preferred shares, which are entitled to one vote per share, generally vote
with the common shares but vote separately as a class to elect two Trustees and
on any matters affecting the rights of the preferred shares.
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, 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
Treasury shares purchased and retired (weighted average
discount 6.58%)*.......................................... (279,625) (2,796) (3,889,155)
---------- -------- ------------
Balance, October 31, 2007................................... 17,674,213 $176,743 $245,223,077
========== ======== ============
---------------------
* The Trustees have voted to retire the shares purchased.
22
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2007 continued
6. Dividends to Common Shareholders
On September 25, 2007, the Trust declared the following dividends from net
investment income:
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ----------------- -----------------
$0.055 November 9, 2007 November 23, 2007
$0.055 December 7, 2007 December 21, 2007
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
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 Trusts in exchange for
cash and residual interests in the Dealer Trusts (See Note 1D). 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.
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
23
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2007 continued
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 Statement 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, 2007 OCTOBER 31, 2006
---------------- ----------------
Tax-exempt income........................................... $17,727,304 $18,887,056
Long-term capital gains..................................... 2,487,493 2,320,367
----------- -----------
Total distributions......................................... $20,214,797 $21,207,423
=========== ===========
As of October 31, 2007, the tax-basis components of accumulated earnings were as
follows:
Undistributed tax-exempt income............................. $ 234,912
Undistributed long-term gains............................... 349,364
-----------
Net accumulated earnings.................................... 584,276
Temporary differences....................................... (58,182)
Net unrealized appreciation................................. 14,507,104
-----------
Total accumulated earnings.................................. $15,033,198
===========
As of October 31, 2007, the Trust had temporary book/tax differences primarily
attributable to book amortization of discounts on debt securities and
mark-to-market of open futures contracts.
10. 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
24
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - OCTOBER 31, 2007 continued
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 and is to
be applied to all open tax years as of the effective date. 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.
25
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,
---------------------------------------------------------------------
2007 2006 2005 2004 2003
--------- --------- --------- --------- ---------
Selected Per Share Data:
Net asset value, beginning of period.................. $15.37 $15.23 $15.49 $15.38 $15.50
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income*............................ 0.96 0.97 0.96 0.96 0.97
Net realized and unrealized gain (loss)........... (0.47) 0.30 (0.35) 0.16 0.14
Common share equivalent of dividends paid to
preferred shareholders*........................... (0.28) (0.24) (0.13) (0.11) (0.13)
------ ------ ------ ------ ------
Total income from investment operations............... 0.21 1.03 0.48 1.01 0.98
------ ------ ------ ------ ------
Less dividends and distributions from:
Net investment income............................. (0.72) (0.80) (0.81) (0.87) (0.90)
Net realized gain................................. (0.14) (0.13) -- (0.08) (0.23)
------ ------ ------ ------ ------
Total dividends and distributions..................... (0.86) (0.93) (0.81) (0.95) (1.13)
------ ------ ------ ------ ------
Anti-dilutive effect of acquiring treasury shares*.... 0.02 0.04 0.07 0.05 0.03
------ ------ ------ ------ ------
Net asset value, end of period........................ $14.74 $15.37 $15.23 $15.49 $15.38
====== ====== ====== ====== ======
Market value, end of period........................... $13.15 $14.26 $13.60 $13.88 $14.38
====== ====== ====== ====== ======
Total Return+......................................... (2.08)% 11.91% 3.86% 3.21% 9.78%
Ratios to Average Net Assets of Common Shareholders:
Total expenses (before expense offset)................ 1.41%(1)(2) 0.91%(2) 0.78%(2) 0.82%(2) 0.80%(2)
Total expenses (before expense offset, exclusive of
interest
and residual trust expenses)......................... 0.76%(1)(2) 0.74%(2) 0.78%(2) 0.82%(2) 0.80%(2)
Net investment income before preferred stock
dividends............................................ 6.43%(1) 6.43% 6.24% 6.34% 6.26%
Preferred stock dividends............................. 1.87% 1.56% 0.87% 0.69% 0.87%
Net investment income available to common
shareholders......................................... 4.56%(1) 4.87% 5.37% 5.65% 5.39%
Supplemental Data:
Net assets applicable to common shareholders, end of
period, in thousands................................. $260,433 $275,879 $282,471 $300,329 $309,296
Asset coverage on preferred shares at end of period... 300% 312% 317% 331% 338%
Portfolio turnover rate............................... 6% 15% 14% 14% 11%
---------------------
* 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) Reflects waivers of certain Trust expenses in connection
with the investments in Morgan Stanley Institutional
Liquidity Tax-Exempt Portfolio -- Institutional Class during
the period. As a result of such waivers the expenses as a
percentage of its net assets had an effect of less than
0.005%.
(2) Does not reflect the effect of expense offset of 0.01%.
26
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, 2007, 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, 2007, 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, 2007, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
New York, New York
December 24, 2007
27
Morgan Stanley Insured Municipal Trust
SHAREHOLDER VOTING RESULTS (UNAUDITED)
On October 24, 2007, 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:
-----------------------------------------------
FOR WITHHELD ABSTAIN
-----------------------------------------------
Michael F. Klein............................................ 16,249,685 628,282 0
W. Allen Reed............................................... 16,297,616 580,351 0
Election of Trustee by Preferred Shareholders:
-----------------------------------------------
FOR WITHHELD ABSTAIN
-----------------------------------------------
Michael E. Nugent........................................... 2,310 0 0
28
Morgan Stanley Insured Municipal Trust
PORTFOLIO MANAGEMENT/REVISED INVESTMENT POLICY (UNAUDITED)
Portfolio Management
As of the date of this report, the Trust is managed within the Morgan Stanley
Municipals 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 are Steven K. Kreider and Neil Stone, each a
Managing Director of the Investment Adviser.
Revised Investment Policy
To the extent permitted by applicable law and the Trust's investment objectives,
policies, and restrictions, the Trust may invest all or some of its short-term
cash investments in any money market fund advised or managed by the Investment
Adviser or its affiliates. In connection with any such investments, the Trust,
to the extent permitted by the Investment Company Act, will pay its share of all
expenses (other than advisory and administrative fees) of a money market fund in
which it invests which may result in the Trust bearing some additional expenses.
The Board of Trustees Approved a Clarification in the Investment Policies
Discussed Below
The Trust may invest in put and call options and futures on its portfolio
securities. The Trust may use options and futures to protect against a decline
in the Trust's securities or an increase in prices of securities that may be
purchased or to adjust the Trust's yield curve exposure.
If the Trust invests in options and/or futures, its participation in these
markets would subject the Trust's portfolio to certain risks. If the Investment
Adviser's predictions of movements in the direction of the markets are
inaccurate, the adverse consequences to the Trust (e.g., a reduction in the
Trust's net asset value or a reduction in the amount of income available for
distribution) may leave the Trust in a worse position than if these strategies
were not used. Other risks inherent in the use of options and futures include,
for example, the possible imperfect correlation between the price of options and
futures contracts and movements in the prices of the securities being hedged.
With respect to futures contracts, this correlation may be further distorted
since the futures contracts that are being used to hedge are not based on
municipal obligations. There is also the possibility of an absence of a liquid
secondary market for any particular instrument. Certain options may be over-
the-counter options which are options negotiated with dealers; there is no
secondary market for these investments and therefore may be difficult to value.
If the Trust uses an option or futures transaction as an alternative to
purchasing or selling an underlying instrument in order to obtain desired
exposure, the Trust will be exposed to the same risks as are incurred in
purchasing and selling the underlying instrument directly.
29
Morgan Stanley Insured Municipal Trust
DIVIDEND REINVESTMENT PLAN (UNAUDITED)
The dividend reinvestment plan (the "Plan") offers you a prompt and simple way
to reinvest your dividends and capital gains distributions into additional
shares of the Trust. Under the Plan, the money you earn from dividends and
capital gains distributions will be reinvested automatically in more shares of
the Trust, allowing you to potentially increase your investment over time. All
shareholders in the Trust are automatically enrolled in the Plan when shares are
purchased.
PLAN BENEFITS
- ADD TO YOUR ACCOUNT
You may increase your shares in the Trust easily and automatically with the
Plan.
- LOW TRANSACTION COSTS
Transaction costs are low because the new shares are bought in blocks and the
brokerage commission is shared among all participants.
- CONVENIENCE
You will receive a detailed account statement from Computershare Trust Company,
N.A., which administers the Plan, whenever shares are reinvested for you. The
statement shows your total distributions, date of investment, shares acquired,
and price per share, as well as the total number of shares in your reinvestment
account. You can also access your account via the Internet. To do this, please
go to morganstanley.com.
- SAFEKEEPING
Computershare Trust Company, N.A. will hold the shares it has acquired for you
in safekeeping.
HOW TO PARTICIPATE IN THE PLAN
If you own shares in your own name, you can participate directly in the Plan. If
your shares are held in "street name" -- in the name of your brokerage firm,
bank, or other financial institution -- you must instruct that entity to
participate on your behalf. If they are unable to participate on your behalf,
you may request that they reregister your shares in your own name so that you
may enroll in the Plan.
If you choose to participate in the Plan, whenever the Trust declares a dividend
or capital gains distributions, it will be invested in additional shares of your
Trust that are purchased in the open market.
HOW TO ENROLL
To enroll in the Plan, please read the Terms and Conditions in the Plan
brochure. You can obtain a copy of the Plan Brochure and enroll in the Plan by
visiting morganstanley.com, calling toll-free (888) 421-4015 or notifying us in
writing at Morgan Stanley Closed-End Funds, Computershare Trust
30
Morgan Stanley Insured Municipal Trust
DIVIDEND REINVESTMENT PLAN (UNAUDITED) continued
Company, N.A., P.O. Box 43078, Providence, RI 02940-3078. Please include the
Trust name and account number and ensure that all shareholders listed on the
account sign these written instructions. Your participation in the Plan will
begin with the next dividend or capital gains distribution payable after
Computershare Trust Company, N.A. receives your authorization, as long as they
receive it before the "record date," which is generally ten business days before
the dividend is paid. If your authorization arrives after such record date, your
participation in the Plan will begin with the following dividend or
distribution.
COSTS OF THE PLAN
There is no direct charge to you for reinvesting dividends and capital gains
distributions because the Plan's fees are paid by the Trust. However, when
applicable, you will pay your portion of any brokerage commissions incurred when
the new shares are purchased on the open market. These brokerage commissions are
typically less than the standard brokerage charges for individual transactions,
because shares are purchased for all participants in blocks, resulting in lower
commissions for each individual participant. Any brokerage commissions or
service fees are averaged into the purchase price.
TAX IMPLICATIONS
The automatic reinvestment of dividends and capital gains distributions does not
relieve you of any income tax that may be due on dividends or distributions. You
will receive tax information annually to help you prepare your federal and state
income tax returns.
Morgan Stanley does not offer tax advice. The tax information contained herein
is general and is not exhaustive by nature. It was not intended or written to be
used, and it cannot be used by any taxpayer, for avoiding penalties that may be
imposed on the taxpayer under U.S. federal tax laws. Federal and state tax laws
are complex and constantly changing. Shareholders should always consult a legal
or tax advisor for information concerning their individual situation.
HOW TO WITHDRAW FROM THE PLAN
To withdraw from the Plan please visit morganstanley.com or call (888) 421-4015
or notify us in writing at the address below.
Morgan Stanley Closed-End Funds
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
31
Morgan Stanley Insured Municipal Trust
DIVIDEND REINVESTMENT PLAN (UNAUDITED) continued
All shareholders listed on the account must sign any written withdrawal
instructions. If you withdraw, you have three options with regard to the shares
held in your account:
1. If you opt to continue to hold your non-certificated shares, they will be
held by Computershare Trust Company, N.A.
2. If you opt to sell your shares through Morgan Stanley, we will sell all full
and fractional shares and send the proceeds via check to your address of
record after deducting brokerage commissions.
3. You may sell your shares through your financial advisor through the Direct
Registration System ("DRS"). DRS is a service within the securities industry
that allows Trust shares to be held in your name in electronic format. You
retain full ownership of your shares, without having to hold a stock
certificate.
The Trust and Computershare Trust Company, N.A. may amend or terminate the Plan.
Participants will receive written notice at least 30 days before the effective
date of any amendment. In the case of termination, Participants will receive
written notice at least 30 days before the record date for the payment of any
dividend or capital gains distribution by the Trust. In the case of amendment or
termination necessary or appropriate to comply with applicable law or the rules
and policies of the Securities and Exchange Commission or any other regulatory
authority, such written notice will not be required.
TO OBTAIN A COMPLETE COPY OF THE DIVIDEND REINVESTMENT PLAN, PLEASE CALL OUR
CLIENT RELATIONS DEPARTMENT AT 888-421-4015 OR VISIT MORGANSTANLEY.COM.
32
Morgan Stanley Insured Municipal Trust
MORGAN STANLEY ADVISOR CLOSED END FUNDS
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY
We are required by federal law to provide you with a copy of our Privacy Policy
annually.
The following Policy applies to current and former individual investors in
Morgan Stanley Advisor closed end funds. This Policy is not applicable to
partnerships, corporations, trusts or other non-individual clients or account
holders. Please note that we may amend this Policy at any time, and will inform
you of any changes to this Policy as required by law.
WE RESPECT YOUR PRIVACY
We appreciate that you have provided us with your personal financial
information. We strive to maintain the privacy of such information while we help
you achieve your financial objectives. This Policy describes what non-public
personal information we collect about you, why we collect it, and when we may
share it with others. We hope this Policy will help you understand how we
collect and share non-public personal information that we gather about you.
Throughout this Policy, we refer to the non-public information that personally
identifies you or your accounts as "personal information."
1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?
To serve you better and manage our business, it is important that we collect and
maintain accurate information about you. We may obtain this information from
applications and other forms you submit to us, from your dealings with us, from
consumer reporting agencies, from our Web sites and from third parties and other
sources.
FOR EXAMPLE:
- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.
- We may obtain information about account balances, your use of account(s) and
the types of products and services you prefer to receive from us through your
dealings and transactions with us and other sources.
- We may obtain information about your creditworthiness and credit history from
consumer reporting agencies.
- We may collect background information from and through third-party vendors to
verify representations you have made and to comply with various regulatory
requirements.
- If you interact with us through our public and private Web sites, we may
collect information that you provide directly through online communications
(such as an e-mail address). We may also collect information about your
Internet service provider, your domain name, your computer's operating system
and Web browser, your use of our Web sites and your product and service
33
Morgan Stanley Insured Municipal Trust
MORGAN STANLEY ADVISOR CLOSED END FUNDS
AN IMPORTANT NOTICE CONCERNING OUR U.S. PRIVACY POLICY continued
preferences, through the use of "cookies." "Cookies" recognize your computer
each time you return to one of our sites, and help to improve our sites'
content and personalize your experience on our sites by, for example,
suggesting offerings that may interest you. Please consult the Terms of Use of
these sites for more details on our use of cookies.
2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?
To provide you with the products and services you request, to serve you better
and to manage our business, we may disclose personal information we collect
about you to our affiliated companies and to non-affiliated third parties as
required or permitted by law.
A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise required
or permitted by law.
B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except to
enable them to provide services on our behalf, to perform joint marketing
agreements with other financial institutions, or as otherwise required or
permitted by law. For example, some instances where we may disclose information
about you to nonaffiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against fraud,
for institutional risk control, to respond to judicial process or to perform
services on our behalf. When we share personal information with these companies,
they are required to limit their use of personal information to the particular
purpose for which it was shared and they are not allowed to share personal
information with others except to fulfill that limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL INFORMATION WE
COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties that
provide support or marketing services on our behalf may also receive personal
information, and we require them to adhere to confidentiality standards with
respect to such information.
34
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 (62) Trustee Since August President and Chief Executive 171
c/o Kramer Levin Naftalis & Frankel LLP 2006 Officer, 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); Chairperson of
the Insurance Sub-Committee of
the Valuation, Insurance and
Compliance Committee (since
February 2007); 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 (66) 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 (62) 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 (66) 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
35
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 (54) Trustee Since August President, Cedarwood 171
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).
Dr. Manuel H. Johnson (58) 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)
(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.
Name, Age and Address of Other Directorships Held by
Independent Trustee Independent Trustee
--------------------------------------- -----------------------------
Kathleen A. Dennis (54) None.
c/o Kramer Levin Naftalis & Frankel LLP
Counsel to the Independent Trustees
1177 Avenue of the Americas
New York, NY 10036
Dr. Manuel H. Johnson (58) Director of NVR, Inc. (home
c/o Johnson Smick Group, Inc. construction); Director of
888 16th Street, N.W. Evergreen Energy.
Suite 740
Washington, D.C. 20006
36
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**
--------------------------------------- ----------- -------------- ------------------------------ -------------
Joseph J. Kearns (65) Trustee Since August President, Kearns & Associates 174
c/o Kearns & Associates LLC 1994 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); CFO of the J. Paul
Getty Trust.
Michael F. Klein (48) Trustee Since August Managing Director, Aetos 171
c/o Kramer Levin Naftalis & Frankel LLP 2006 Capital, LLC (since March
Counsel to the Independent Trustees 2000) and Co-President, Aetos
1177 Avenue of the Americas Alternatives Management, LLC
New York, NY 10036 (since January 2004);
Chairperson of the
Fixed-Income Sub-Committee of
the Investment Committee
(since October 2006) and
Director or Trustee of various
Retail Funds and Institutional
Funds (since August 2006);
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).
Name, Age and Address of Other Directorships Held by
Independent Trustee Independent Trustee
--------------------------------------- -----------------------------
Joseph J. Kearns (65) 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.
Michael F. Klein (48) Director of certain
c/o Kramer Levin Naftalis & Frankel LLP investment funds managed or
Counsel to the Independent Trustees sponsored by Aetos Capital,
1177 Avenue of the Americas LLC. Director of Sanitized AG
New York, NY 10036 and Sanitized Marketing AG
(specialty chemicals).
37
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 E. Nugent (71) Chairperson Chairperson of General Partner, Triumph 173
c/o Triumph Capital, L.P. of the the Boards Capital, L.P. (private
445 Park Avenue Board and since July investment partnership);
New York, NY 10022 Trustee 2006 and Chairperson of the Boards of
Trustee since the Retail Funds and
July 1991 Institutional Funds (since
July 2006); 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).
W. Allen Reed (60) Trustee Since August Chairperson of the Equity Sub- 171
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 of
New York, NY 10036 various Retail Funds and
Institutional Funds (since
August 2006); formerly,
President and CEO of General
Motors Asset Management;
Chairman and Chief Executive
Officer of the GM Trust Bank
and Corporate Vice President
of General Motors Corporation
(August 1994-December 2005).
Fergus Reid (75) Trustee Since June Chairman of Lumelite Plastics 174
c/o Lumelite Plastics Corporation 1992 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
--------------------------------------- -----------------------------
Michael E. Nugent (71) None.
c/o Triumph Capital, L.P.
445 Park Avenue
New York, NY 10022
W. Allen Reed (60) Director of GMAC (financial
c/o Kramer Levin Naftalis & Frankel LLP services) and Temple-Inland
Counsel to the Independent Trustees Industries (packaging,
1177 Avenue of the Americas banking and forest products);
New York, NY 10036 Director of Legg Mason, Inc.
and Director of the Auburn
University Foundation.
Fergus Reid (75) 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.
38
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 (59) 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 (59) 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.).
39
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 (68) President and President President (since September 2005) and Principal Executive
522 Fifth Avenue Principal since Officer (since May 2003) of funds in the Fund Complex;
New York, NY 10036 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-September 2005) of funds
in the Fund Complex and the Van Kampen Funds; President and
Director of the Institutional Funds (March 2001-July 2003);
Chief Administrative Officer of the Investment Adviser;
Chief Administrative Officer of Morgan Stanley Services
Company Inc.
J. David Germany (53) 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 Limited Management; Managing Director and Director of Morgan Stanley
20 Bank Street Investment Management Limited; Vice President of the Retail
Canary Wharf, Funds and Institutional Funds (since February 2006).
London, England E14 4AD
Dennis F. Shea (54) Vice President Since February Managing Director and (since February 2006) Chief Investment
522 Fifth Avenue 2006 Officer -- Global Equity of Morgan Stanley Investment
New York, NY 10036 Management; Vice President of the Retail Funds and
Institutional Funds (since February 2006). Formerly,
Managing Director and Director of Global Equity Research at
Morgan Stanley.
Amy R. Doberman (45) Vice President Since July Managing Director and General Counsel, U.S. Investment
522 Fifth Avenue 2004 Management of Morgan Stanley Investment Management (since
New York, NY 10036 July 2004); Vice President of the Retail Funds and
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-July 2004).
Carsten Otto (43) Chief Since October Managing Director and Global Head of Compliance for Morgan
522 Fifth Avenue Compliance 2004 Stanley Investment Management (since April 2007); and Chief
New York, NY 10036 Officer Compliance Officer of Morgan Stanley Retail Funds and
Institutional Funds (since October 2004). Formerly, U.S.
Director of Compliance (October 2004-April 2007) and
Assistant Secretary and Assistant General Counsel of the
Retail Funds.
Stefanie V. Chang Yu (40) Vice President Since December Executive Director of the Investment Adviser and various
522 Fifth Avenue 1997 entities affiliated with the Investment Adviser; Vice
New York, NY 10036 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.
40
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 (42) 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 (40) Secretary Since June Executive Director of the Investment Adviser and various
522 Fifth Avenue 1999 entities affiliated with the Investment Adviser; Secretary
New York, NY 10036 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
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 26, 2007.
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.
2007 FEDERAL TAX NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is
furnished with respect to the distributions paid by the Trust
during its taxable year ended October 31, 2007. The Trust
designated 100% of its income dividends as tax-exempt income
dividends. The Trust designated and paid $2,487,493 as a
long-term capital gain distribution.
In January, the Trust provides tax information to shareholders
for the preceding calendar year.
41
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(This Page Intentionally Left Blank)
TRUSTEES
Frank L. Bowman
Michael Bozic
Kathleen A. Dennis
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
Chairperson of the Board
Ronald E. Robison
President and Principal Executive Officer
J. David Germany
Vice President
Dennis F. Shea
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
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
LEGAL COUNSEL
Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019
COUNSEL TO THE INDEPENDENT TRUSTEES
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
INVESTMENT ADVISER
Morgan Stanley Investment Advisors Inc.
522 Fifth Avenue
New York, New York 10036
(c) 2007 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Insured Municipal Trust
Annual Report
October 31, 2007
[MORGAN STANLEY LOGO]
IMTANN
IU07-05528P-Y10/07
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
2007
REGISTRANT COVERED ENTITIES(1)
---------- -------------------
AUDIT FEES ............. $31,500 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES .. $ 5,750(2) $5,041,000(2)
TAX FEES ............ $ 5,047(3) $ 761,000(4)
ALL OTHER FEES ...... $______ $_________
TOTAL NON-AUDIT FEES ... $10,797 $5,802,000
TOTAL .................. $42,297 $_________
2006
REGISTRANT COVERED 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)
TOTAL NON-AUDIT FEES ... $10,996 $6,690,485
TOTAL .................. $42,196 $6,690,485
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 Fund's Chief Financial Officer will determine whether such
services are included within the list of services that have received the general
pre-approval of the Audit Committee. The Audit Committee will be informed on a
timely basis of any such services rendered by the Independent Auditors. Requests
or applications to provide services that require specific approval by the Audit
Committee will be submitted to the Audit Committee by both the Independent
Auditors and the Fund's Chief Financial Officer, and must include a joint
statement as to whether, in their view, the request or application is consistent
with the SEC's rules on auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer to monitor
the performance of all services provided by the Independent Auditors and to
determine whether such services are in compliance with this Policy. The Fund's
Chief Financial Officer will report to the Audit Committee on a periodic basis
on the results of its monitoring. Both the Fund's Chief Financial Officer and
management will immediately report to the chairman of the Audit Committee any
breach of this Policy that comes to the attention of the Fund's Chief Financial
Officer or any member of management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an annual
basis to meet its responsibility to oversee the work of the Independent Auditors
and to assure the auditor's independence from the Fund, such as reviewing a
formal written statement from the Independent Auditors delineating all
relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any entity
controlling, controlled by or under common control with the Fund's investment
adviser(s) that provides ongoing services to the Fund(s). Beginning with
non-audit service contracts entered into on or after May 6, 2003, the Fund's
audit committee must pre-approve non-audit services provided not only to the
Fund but also to the Covered Entities if the engagements relate directly to the
operations and financial reporting of the Fund. This list of Covered Entities
would include:
Morgan Stanley Retail Funds
Morgan Stanley Investment Advisors Inc.
Morgan Stanley & Co. Incorporated
Morgan Stanley DW Inc.
Morgan Stanley Investment Management Inc.
Morgan Stanley Investment Management Limited
Morgan Stanley Investment Management Private Limited
Morgan Stanley Asset & Investment Trust Management Co., Limited
Morgan Stanley Investment Management Company
Van Kampen Asset Management
Morgan Stanley Services Company, Inc.
Morgan Stanley Distributors Inc.
Morgan Stanley Trust FSB
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:
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
Applicable only to reports covering periods ending on or after December 31,
2005.
PORTFOLIO MANAGEMENT. As of the date of this report, the Fund is managed within
the Morgan Stanley Municipals 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 Fund's portfolio are Steven K. Kreider and Neil
Stone, each a Managing Director of the Investment Adviser.
Mr. Kreider has been associated with the Investment Adviser in an investment
management capacity since February 1988 and began managing the Fund in September
2007. Mr. Stone has been associated with the Investment Adviser in an investment
management capacity since March 1995 and began managing the Fund in September
2007.
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, 2007:
Steven K. Kreider managed 45 registered investment companies with a total of
approximately $35.3 billion in assets; no pooled investment vehicles other than
registered investment companies; and 68 other accounts (which include separate
accounts managed under certain "wrap fee programs") with a total of
approximately $12.9 billion in assets. Of these other accounts, 3 accounts with
a total of approximately $1.0 billion in assets had performance-based fees.
Neil Stone managed 19 registered investment companies with a total of
approximately $7.8 billion in assets; no pooled investment vehicles other than
registered investment companies; and 18 other accounts (which include separate
accounts managed under certain "wrap fee programs") with a total of
approximately $4.5 billion in assets.
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 Fund, or it may receive a
performance-based fee on certain accounts. In those instances, the portfolio
managers may have an incentive to favor the higher and/or performance-based fee
accounts over the Fund. In addition, a conflict of interest could exist to the
extent the Investment Adviser has proprietary investments in certain accounts,
where portfolio managers have personal investments in certain accounts or when
certain accounts are investment options in the Investment Adviser's employee
benefits and/or deferred compensation plans. The portfolio manager may have an
incentive to favor these accounts over others. If the Investment Adviser manages
accounts that engage in short sales of securities of the type in which the Fund
invests, the Investment Adviser could be seen as harming the performance of the
Fund for the benefit of the accounts engaging in short sales if the short sales
cause the market value of the securities to fall. The Investment Adviser has
adopted trade allocation and 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, comprising 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 managers.
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 Long Term Incentive Compensation 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 or other investments 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 funds they
manage that are included in the IMAP fund menu, which may or may
not include the Fund.
- 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 against a fund's/account's primary benchmark (as set
forth in the fund's prospectus), 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, 2007, the portfolio managers did not own any shares of
the Fund.
9
Item 9. Closed-End Fund Repurchases
REGISTRANT PURCHASE OF EQUITY SECURITIES
(d) Maximum
(c) Total Number (or
Number of Approximate
Shares (or Dollar Value)
Units) of Shares (or
(a) Total Purchased as Units) that May
Number of Part of Publicly Yet Be
Shares (or (b) Average Announced Purchased
Units) Price Paid per Plans or Under the Plans
Period Purchased Share (or Unit) Programs or Programs
------------- ---------- --------------- ---------------- ---------------
November 1---
November 30 46,500 14.392 N/A N/A
December 1
December 31 41,900 14.3461 N/A N/A
January 1
January 31 25,500 14.3125 N/A N/A
February 1
February 28 10,600 14.4039 N/A N/A
March 1
March 31 5,400 14.4734 N/A N/A
April 1
April 30 2,000 14.6370 N/A N/A
May 1
May 31 -- -- N/A N/A
June 1
June 30 2,200 13.7507 N/A N/A
July 1
July 31 20,800 13.6453 N/A N/A
August 1
August 31 46,325 13.428 N/A N/A
September 1
September 30 37,200 13.77 N/A N/A
October 1
October 31 41,200 13.2925 N/A N/A
------- -------
Total 279,625 14.0409 N/A N/A
======= =======
10
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
ensure that information required to be disclosed by the Trust in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
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.
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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 Securities
/s/ Ronald E. Robison
Ronald E. Robison
Principal Executive Officer
December 20, 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
December 20, 2007
/s/ Francis Smith
Francis Smith
Principal Financial Officer
December 20, 2007
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