MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS o OCTOBER 31, 2001
DEAR SHAREHOLDER:
During the fiscal year ended October 31, 2001, the U.S. economy slowed and the
fixed-income markets rallied. The terrorist attacks on September 11 aggravated
the decline in business and consumer activity. Almost immediately after the
attacks many companies announced major layoffs. The unemployment rate jumped
from 4.9 percent to 5.4 percent and October reported the largest job loss in 20
years.
The Federal Reserve Board responded to the attacks by lowering short-term
interest rates by 50 basis points in both September and October. Subsequently,
the Fed cut rates another 50 basis points in November. The November action, the
tenth in 2001, reduced the federal funds rate to 2.00 percent, the lowest level
since 1961. Additionally, both the House and Senate have been formulating plans
to stimulate the economy. These monetary and fiscal actions appear to be laying
the groundwork for an economic recovery.
Within the fixed-income markets, events of the past fiscal year had the
greatest impact on U.S. Treasuries which appreciated throughout the year and
rallied further in a flight to quality following September 11. Yields of short
maturities declined the most, steepening the yield curve. On October 31, the
U.S. Treasury stunned the securities markets by announcing the cessation of the
30-year bond auction.
MUNICIPAL MARKET CONDITIONS
Over the past 12 months, tax-free interest rates have also moved lower. The
30-year insured municipal bond index, which was 5.65 percent last October,
declined to 5.04 percent by the end of October 2001.
The ratio of municipal yields as a percentage of U.S. Treasury yields is
routinely used as a guide to track the relationship between the two markets. A
declining yield ratio indicates stronger relative performance by municipals.
The ratio of 30-year insured municipal bond yields to U.S. Treasuries fell from
98 percent last October to 94 percent at the end of August. However, following
September 11 and the Treasury's auction announcement, the ratio jumped to 104
percent. Long-term insured municipal yields above Treasuries is an anomaly that
has occurred only during periods of significant market uncertainty. In the
10-year maturity range, the ratio also soared, from 83 percent to 95 percent
between August and October.
The change in the slope of the yield curve has been a major story in the
fixed-income markets this year. Since the Fed started lowering short-term rates
aggressively in January, the municipal yield curve between one- and 30-year
maturities steepened, from 125 to 300 basis points.
Lower interest rates also led to a rebound in new-issue volume. During the
first 10 months of 2001, underwriting surged 36 percent, to $224 billion.
Refunding issues, the most interest-rate-sensitive category, represented almost
one-quarter of the total. The states with the greatest issuance: California,
Florida, New York and Texas represented 35 percent of national volume.
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS o OCTOBER 31, 2001 CONTINUED
Date AAA Ins Tsy % Relationship
12/31/96 5.60 6.63 84.46%
1/31/97 5.70 6.79 83.95%
2/28/97 5.65 6.80 83.09%
3/31/97 5.90 7.10 83.10%
4/30/97 5.75 6.94 82.85%
5/30/97 5.65 6.91 81.77%
6/30/97 5.60 6.78 82.60%
7/30/97 5.30 6.30 84.13%
8/31/97 5.50 6.61 83.21%
9/30/97 5.40 6.40 84.38%
10/31/97 5.35 6.15 86.99%
11/30/97 5.30 6.05 87.60%
12/31/97 5.15 5.92 86.99%
1/31/98 5.15 5.80 88.79%
2/28/98 5.20 5.92 87.84%
3/31/98 5.25 5.93 88.53%
4/30/98 5.35 5.95 89.92%
5/29/98 5.20 5.80 89.66%
6/30/98 5.20 5.65 92.04%
7/31/98 5.18 5.71 90.72%
8/31/98 5.03 5.27 95.45%
9/30/98 4.95 5.00 99.00%
10/31/98 5.05 5.16 97.87%
11/30/98 5.00 5.06 98.81%
12/31/98 5.05 5.10 99.02%
1/31/99 5.00 5.09 98.23%
2/28/99 5.10 5.58 91.40%
3/31/99 5.15 5.63 91.47%
4/30/99 5.20 5.66 91.87%
5/31/99 5.30 5.83 90.91%
6/30/99 5.47 5.96 91.78%
7/31/99 5.55 6.10 90.98%
8/31/99 5.75 6.06 94.88%
9/30/99 5.85 6.05 96.69%
10/31/99 6.03 6.16 97.89%
11/30/99 6.00 6.29 95.39%
12/31/99 5.97 6.48 92.13%
1/31/00 6.18 6.49 95.22%
2/29/00 6.04 6.14 98.37%
3/31/00 5.82 5.83 99.83%
4/30/00 5.91 5.96 99.16%
5/31/00 5.91 6.01 98.34%
6/30/00 5.84 5.90 98.98%
7/31/00 5.73 5.78 99.13%
8/31/00 5.62 5.67 99.12%
9/30/00 5.74 5.89 97.45%
10/31/00 5.65 5.79 97.58%
11/30/00 5.55 5.61 98.93%
12/31/00 5.27 5.46 96.52%
1/31/01 5.30 5.50 96.36%
2/28/01 5.27 5.31 99.25%
3/31/01 5.26 5.44 96.69%
4/30/01 5.45 5.79 94.13%
5/31/01 5.40 5.75 93.91%
6/30/01 5.35 5.76 92.88%
7/31/01 5.16 5.52 93.48%
8/31/01 5.07 5.37 94.41%
9/30/01 5.20 5.42 95.94%
10/31/01 5.04 4.87 103.49%
11/30/01 5.17 5.29 97.73%
Source: Municipal Market Data - A Division of Thomas Financial Municipal Group
and Bloomberg L.P.
PERFORMANCE
During the 12-month period ended October 31, 2001, the net asset value (NAV) of
Morgan Stanley Insured Municipal Income Trust (IIM) increased from $14.44 to
$15.42 per share. Based on this change, plus a reinvestment of tax-free
dividends totaling $0.78 per share, the Trust's total NAV return was 13.00
percent. IIM's value on the New York Stock Exchange (NYSE) increased from
$12.8125 to $14.13 per share during this period. Based on this change plus
reinvestment of tax-free dividends, IIM's total market return was 16.70
percent. As of October 31, 2001, IIM's share price was at a 8.37 percent
discount to its NAV.
Monthly dividends for November and December 2001 were declared in October.
Beginning with the November payment, the monthly dividend was increased from
$0.065 to $0.0675 per share. On October 31, 2001, the Trust's level of
undistributed net investment income was $0.086 per share, versus
2
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS o OCTOBER 31, 2001 CONTINUED
$0.043 per share at the beginning of the calendar year. The new dividend level
more closely reflects the Trust's current earnings, which have benefited from
the lower short-term borrowing costs of Auction Rate Preferred Shares (ARPS).
PORTFOLIO STRUCTURE
The Trust's net assets of $560 million were diversified among 13 long-term
sectors and 83 credits. At the end of October, the portfolio's average maturity
was 20 years. Average duration, a measure of sensitivity to interest-rate
changes, was 4.8 years. The accompanying charts and table provide current
information on the portfolio's credit enhancements, maturity distribution and
sector concentration. Optional call provisions by year and their respective
cost (book) yields are also shown.
THE IMPACT OF LEVERAGING
As discussed in previous shareholder reports, the total income available for
distribution to common shareholders includes incremental income provided by the
Trust's outstanding Auction Rate Preferred Shares. ARPS dividends reflect
prevailing short-term interest rates on maturities normally ranging from one
week to one year. Incremental income to common shareholders depends on two
factors. The first factor is the amount of ARPS outstanding, while the second
is the spread between the portfolio's cost yield and ARPS expenses (ARPS
auction rate and expenses). The greater the spread and amount of ARPS
outstanding, the greater the amount of incremental income available for
distribution to common shareholders. The level of net investment income
available for distribution to common shareholders varies with the level of
short-term interest rates. ARPS leverage also increases the price volatility of
common shares and has the effect of extending portfolio duration.
During the 12-month period, ARPS leverage contributed approximately $0.08 per
share to common share earnings. IIM's five ARPS series totaled $155 million and
represented 28 percent of net assets. Weekly ARPS rates ranged between 1.70 and
5.05 percent during the fiscal period. In July and September 2001, 12-month
auctions were rolled at 2.95 and 2.47 percent, respectively.
LOOKING AHEAD
Economists calculated the negative impact of the September 11 attacks to be a
full percentage point of gross domestic product. Consensus estimates for the
second half of 2001 have accordingly been revised from modestly positive to
negative. A decline in economic output for two successive quarters would meet
the customary definition of a recession, which would be the first in a record
10 years. While there is no doubt that the terrorist attacks are having a
negative impact on the economy, high-grade fixed-income securities have
historically fared well during periods of stress.
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
3
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS o OCTOBER 31, 2001 CONTINUED
addition, we would like to remind you that the Trustees have approved a
procedure whereby the Trust may, when appropriate, purchase shares in the open
market or in privately negotiated transactions at a price not above market
value or net asset value, whichever is lower at the time of purchase. The Trust
may also utilize procedures to reduce or eliminate the amount of outstanding
ARPS, including their purchase in the open market or in privately negotiated
transactions. During the 12-month period ended October 31, 2001, the Trust
purchased and retired 907,700 shares of common stock at a weighted average
market discount of 8.88 percent.
We appreciate your ongoing support of Morgan Stanley Insured Municipal Income
Trust and look forward to continuing to serve your investment needs.
Very truly yours,
/s/ Charles A. Fiumefreddo /s/ Mitchell M. Merin
---------------------------- ------------------------------
Charles A. Fiumefreddo Mitchell M. Merin
Chairman of the Board President
4
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS o OCTOBER 31, 2001 CONTINUED
LARGEST SECTORS AS OF OCTOBER 31, 2001
(% OF NET ASSETS)
Water & Sewer 16%
Transportation 15%
Electric 13%
General Obligation 11%
Hospital 11%
IDR/PCR* 8%
Refunded 7%
Mortgage 6%
* INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
CREDIT ENHANCEMENTS AS OF OCTOBER 31, 2001
(% OF TOTAL LONG-TERM PORTFOLIO)
MBIA 37%
FGIC 25%
FSA 19%
AMBAC 19%
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
DISTRIBUTION BY MATURITY
(% OF TOTAL LONG-TERM PORTFOLIO)
1-5 Years 1.5%
5-10 Years 4.7%
10-20 Years 50.4%
20-30 Years 37.2%
30+ Years 6.2%
WEIGHTED AVERAGE MATURITY: 20 YEARS
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
5
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
LETTER TO THE SHAREHOLDERS o OCTOBER 31, 2001 CONTINUED
CALL AND COST (BOOK) YIELD STRUCTURE
(BASED ON LONG-TERM PORTFOLIO)
OCTOBER 31, 2001
WEIGHTED AVERAGE CALL PROTECTION: 5 YEARS
BONDS CALLABLE
2% 12% 45% 0% 1% 1% 1% 4% 5% 11% 18%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011+
YEARS BONDS CALLABLE
WEIGHTED AVERAGE BOOK YIELD: 5.7%
COST (BOOK) YIELD*
6.0% 5.9% 5.9% 0.0% 5.9% 5.8% 5.6% 5.3% 5.7% 5.6% 5.3%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011+
* COST OR "BOOK" YIELD IS THE ANNUAL INCOME EARNED ON A PORTFOLIO INVESTMENT
BASED ON ITS ORIGINAL PURCHASE PRICE BEFORE TRUST OPERATING EXPENSES. FOR
EXAMPLE, THE TRUST IS EARNING A BOOK YIELD OF 6.0% ON 2% OF THE LONG-TERM
PORTFOLIO THAT IS CALLABLE IN 2001.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
6
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
RESULTS OF ANNUAL MEETING
On October 23, 2001, an annual meeting of the Trust's shareholders was held for
the purpose of voting on two separate matters, the results of which were as
follows:
(1) Election of Trustees by all shareholders:
Michael Bozic
For ..................................................... 20,041,878
Withheld ................................................ 348,058
James F. Higgins
For ..................................................... 20,033,388
Withheld ................................................ 356,548
(2) Election of Trustee by preferred shareholders:
Charles A. Fiumefreddo
For ..................................................... 2,337
Against ................................................. 182
The following Trustees were not standing for reelection at this meeting: Edwin
J. Garn, Wayne E. Hedien, Dr. Manuel H. Johnson, Michael E. Nugent, Philip J.
Purcell and John L. Schroeder.
7
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS o OCTOBER 31, 2001
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT MUNICIPAL BONDS (97.6%)
GENERAL OBLIGATION (11.1%)
District of Columbia,
$ 5,000 Refg Ser 1993 B (Ambac) ................................................ 5.50 % 06/01/09 $ 5,524,100
6,000 Refg Ser 1993 B (FSA) .................................................. 5.50 06/01/10 6,661,980
15,000 Chicago, Illinois, Neighborhoods Alive 21 Ser 2001 A (FGIC) .............. 5.50 01/01/36 15,593,100
7,000 Cook County, Illinois, Ser B (FGIC) ...................................... 5.50 11/15/22 7,119,070
5,000 River Rouge School District, Michigan, 1993 Bldg & Site Unltd Tax
(FSA) .................................................................. 5.625 05/01/22 5,125,950
3,000 Vicksburg Community Schools, Michigan, 1993 Refg (MBIA) .................. 5.625 05/01/20 3,077,310
6,000 Clark County Sanitation District, Nevada, Refg 1993 (FGIC) ............... 5.70 07/01/12 6,343,260
8,000 Washoe County, Nevada, Reno - Sparks Convention Ltd Tax
Ser 1993 A (FGIC) ...................................................... 5.75 07/01/22 8,408,480
4,000 Houston, Texas, Public Improvement & Refg Ser 2001 B (FSA) (WI) .......... 5.50 03/01/17 4,218,640
--------- ------------
59,000 62,071,890
--------- ------------
EDUCATIONAL FACILITIES REVENUE (3.2%)
4,000 Alabama State University, General Tuition & Fee Ser 1993 (MBIA) .......... 5.70 05/01/15 4,218,560
3,000 District of Columbia, American Association for the Advancement of
Science Ser 1997 (Ambac) ............................................... 5.125 01/01/27 2,989,680
4,000 Illinois Educational Facilities Authority, DePaul University
Refg Ser 1997 (Ambac) .................................................. 5.50 10/01/19 4,155,760
4,000 New Hampshire Health & Education Facilities Authority, University of
New Hampshire Ser 2001 (Ambac) ......................................... 5.125 07/01/33 4,021,280
2,500 Rhode Island Health & Educational Building Corporation,
Providence College Ser 1993 (MBIA) ..................................... 5.60 11/01/15 2,652,725
--------- ------------
17,500 18,038,005
--------- ------------
ELECTRIC REVENUE (13.4%)
8,000 Redding, California, Electric Ser 1993 A (FGIC) .......................... 9.056++ 06/01/19 8,780,000
5,000 Massachusetts Municipal Wholesale Electric Company, 1993 Ser A
(Ambac) ................................................................ 5.00 07/01/10 5,182,250
3,000 New York State Energy Research & Development Authority,
Brooklyn Union Gas Co Ser 1991 D (AMT) (MBIA) .......................... 9.009++ 07/08/26 3,112,500
10,000 North Carolina Municipal Power Agency #1, Catawba Ser 1993 A
(MBIA) ................................................................. 7.92++ 01/01/20 10,575,000
3,000 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
(MBIA) ................................................................. 5.375 01/01/25 3,148,890
10,000 South Carolina Public Service Authority, 1993 Refg Ser A (MBIA) .......... 5.50 07/01/21 10,170,400
See Notes to Financial Statements
8
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS o OCTOBER 31, 2001 CONTINUED
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------------------------------------------------------------------------------------------------------------------------------
Lower Colorado River Authority, Texas,
$ 10,000 Refg Ser 1999 A (FSA) ................................................... 5.875% 05/15/16 $ 10,982,500
5,000 Refg Ser 2001 (FSA) ..................................................... 5.00 05/15/26 4,944,150
10,000 Washington Public Power Supply System, Nuclear Proj #1 Refg
Ser 1993 A (MBIA) ....................................................... 5.70 07/01/17 10,356,000
8,000 Wisconsin Public Power, Refg Ser 1993 A (Ambac) ........................... 5.25 07/01/21 8,052,400
--------- ------------
72,000 75,304,090
--------- ------------
HOSPITAL REVENUE (10.8%)
5,000 Mesa Industrial Development Authority, Arizona, Discovery Health
Ser 1999 A (MBIA) ....................................................... 5.875 01/01/16 5,503,550
2,100 District of Columbia, Children's Hospital Refg Ser 1992 A (FGIC) .......... 6.25 07/15/10 2,197,356
5,000 Sarasota County Public Hospital Board, Florida, Sarasota Memorial
Hospital Refg Ser 1998 B (MBIA) ......................................... 5.25 07/01/24 5,209,600
3,000 Indiana Health Facilities Financing Authority, Deaconess Hospital Inc
Refg Ser 1993 (MBIA) .................................................... 5.75 03/01/15 3,101,970
5,000 Kentucky Economic Development Finance Authority, St Elizabeth
Medical Center Inc Ser 1993 A (FGIC) .................................... 6.00 12/01/22 5,344,000
3,935 Maine Health & Higher Educational Facilities Authority, Ser 1993 A
(FSA) ................................................................... 5.50 07/01/23 3,995,914
5,500 Massachusetts Health & Educational Facilities Authority,
Lahey Clinic Medical Center Ser B (MBIA) ................................ 5.625 07/01/15 5,700,035
4,000 Missouri Health & Educational Facilities Authority, SSM Health Care
Ser 1998 A (MBIA) ....................................................... 5.00 06/01/22 4,002,600
4,000 Washington County Hospital Authority, Pennsylvania, Washington
Hospital Ser 1993 (Ambac) ............................................... 5.625 07/01/23 4,077,160
4,000 Chattanooga-Hamilton County Hospital Authority, Tennessee,
Erlanger Medical Center Refg Ser 1993 (FSA) ............................. 5.50 10/01/13 4,157,960
3,000 Metropolitan Government of Nashville & Davidson County Health
& Educational Facilities Board, Tennessee, Baptist Hospital
Ser 1998 A (MBIA) ....................................................... 4.875 11/01/28 2,881,230
Amarillo Health Facilities Corporation, Texas,
3,020 Baptist St Anthony's Hospital Ser 1998 (FSA) ............................ 5.50 01/01/16 3,241,728
5,075 Baptist St Anthony's Hospital Ser 1998 (FSA) ............................ 5.50 01/01/17 5,420,303
5,500 Wisconsin Health & Educational Facilities Authority, Sisters of the
Sorrowful Mother Health Care Ser AA (MBIA) .............................. 6.25 06/01/20 5,708,945
--------- ------------
58,130 60,542,351
--------- ------------
See Notes to Financial Statements
9
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS o OCTOBER 31, 2001 CONTINUED
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL DEVELOPMENT/POLLUTION CONTROL REVENUE (8.2%)
$ 7,500 Adams County, Colorado, Public Service Co of Colorado
Refg 1993 Ser A (MBIA) ............................................. 5.875% 04/01/14 $ 7,869,675
5,000 Hawaii Department of Budget and Finance, Hawaiian Electric Co
Ser 1999 C (AMT) (Ambac) ........................................... 6.20 11/01/29 5,465,800
12,000 Indiana Development Finance Authority, PSI Energy Inc Ser 1993 B
(AMT) (MBIA) ....................................................... 5.75 02/15/28 12,273,960
4,900 Monroe County, Michigan, Detroit Edison Co Ser CC (AMT) (MBIA) ....... 6.55 06/01/24 5,238,786
5,400 Forsyth, Montana, Puget Sound Power & Light Co Ser 1993 (MBIA) ....... 5.875 04/01/20 5,583,060
5,000 Washoe County, Nevada, Sierra Pacific Power Co Ser 1987 (AMT)
(MBIA) ............................................................. 6.65 06/01/17 5,298,100
4,000 Brazos River Authority, Texas, Texas Utilities Electric Co Ser 1993 A
(AMT) (Ambac) ...................................................... 6.05 04/01/25 4,249,760
--------- ------------
43,800 45,979,141
--------- ------------
MORTGAGE REVENUE - MULTI-FAMILY (0.7%)
4,000 West Virginia Housing Development Fund, Ser A (Ambac) ................ 5.65 11/01/21 4,051,040
--------- ------------
MORTGAGE REVENUE - SINGLE FAMILY (5.6%)
13,755 Connecticut Housing Finance Authority, 1992 Ser A-2 (AMT)
(Secondary FSA) .................................................... 6.05 11/15/25 14,046,881
1,195 Maine Housing Authority, Mortgage Purchase 1990 Ser A-6 (AMT)
(Secondary MBIA) ................................................... 6.35 11/15/22 1,234,268
12,500 New Jersey Housing & Mortgage Finance Agency, Home Buyer
1990 Ser F-3 (AMT) (MBIA) .......................................... 5.95 04/01/25 12,601,625
3,600 Virginia Housing Development Authority, 1992 Ser B (AMT)
(Secondary FSA) .................................................... 6.30 01/01/27 3,677,184
--------- ------------
31,050 31,559,958
--------- ------------
PUBLIC FACILITIES REVENUE (3.2%)
3,000 Broward County School Board, Florida, Ser 2001 A COPs (FSA) .......... 5.00 07/01/26 2,999,790
5,000 Miami Dade County School Board, Florida, Ser 2001 A COPs (MBIA)....... 5.00 05/01/31 5,000,000
10,000 Marion County Convention & Recreational Facilities Authority, Indiana,
Excise Tax Refg Ser 1993 A (Ambac) ................................. 5.50 06/01/21 10,079,300
--------- ------------
18,000 18,079,090
--------- ------------
STUDENT LOAN REVENUE (3.3%)
18,000 Pennsylvania Higher Education Assistance Agency, 1988 Ser D
(AMT) (Ambac) ...................................................... 6.05 01/01/19 18,533,520
========= ------------
See Notes to Financial Statements
10
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS o OCTOBER 31, 2001 CONTINUED
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION FACILITIES REVENUE (14.5%)
$ 5,000 Tucson, Arizona, Street & Highway Jr Lien Refg Ser 1993 (MBIA) ....... 5.50 % 07/01/12 $ 5,228,000
9,000 Long Beach California, Harbor Refg Ser 1998 A (AMT) (FGIC) ........... 6.00 05/15/18 10,352,610
5,000 Chicago, Illinois, Chicago-O'Hare Int'l Airport Second Lien
Refg 1993 Ser A (AMT) (MBIA) ....................................... 5.60 01/01/18 5,077,000
4,000 Illinois Toll Highway Authority, Priority Refg 1998 Ser A (FSA) ...... 5.50 01/01/15 4,414,840
5,000 Minneapolis-St Paul Metropolitan Airports Commission, Minnesota,
Ser 2001 C (FGIC) .................................................. 5.25 01/01/32 5,061,300
3,250 St Louis, Missouri, Lambert Int'l Airport Ser 2001 A (MBIA) .......... 5.00 07/01/20 3,245,873
9,000 Nevada Department of Business & Industry, Las Vegas Monorail,
1st Tier Ser 2000 (Ambac) .......................................... 5.375 01/01/40 9,174,960
5,000 Cleveland, Ohio, Airport Ser 2000 A (FSA) ............................ 5.00 01/01/31 4,931,650
9,000 Pennsylvania Turnpike Commission, Refg Ser O 1992 (FGIC) ............. 5.50 12/01/17 9,222,210
5,000 South Carolina Transportation Infrastructure Bank, Ser 1999 A
(Ambac) ............................................................ 5.50 10/01/16 5,352,350
4,000 Salt Lake City, Utah, Airport Refg Ser 1993 B (FGIC) ................. 5.875 12/01/18 4,166,320
1,665 Richmond Metropolitan Authority, Virginia, Expressway
1992 Ser B (FGIC) .................................................. 6.25 07/15/22 1,736,295
Port of Seattle, Washington,
5,000 Ser 2001 B (AMT) (MBIA) ............................................ 5.625 02/01/24 5,218,150
8,000 Ser 2001 A (FGIC) .................................................. 5.00 04/01/31 7,854,560
--------- ------------
77,915 81,036,118
--------- ------------
WATER & SEWER REVENUE (15.6%)
1,750 Colorado Water Resources & Power Development Authority,
Water Resources 2001 Ser A (FGIC) .................................. 4.875 11/01/23 1,721,475
5,000 Tampa Bay Water Authority, Florida, Ser 2001 A (FGIC) ................ 5.00 10/01/28 5,004,050
2,000 Honolulu City and County, Hawaii, Wastewater Sr Ser 1998 (FGIC) ...... 4.75 07/01/28 1,896,500
10,000 Louisville & Jefferson County Metropolitan Sewer District, Kentucky,
Ser 1993 (MBIA) .................................................... 5.30 05/15/19 10,124,400
2,470 Detroit, Michigan, Sewage Refg Ser 1993 A (FGIC) ..................... 5.70 07/01/13 2,618,249
5,000 Grand Rapids, Michigan, Sewer Impr & Refg Ser 1998 A (FGIC) .......... 4.75 01/01/28 4,758,800
5,000 Cleveland, Ohio, Waterworks Impr & Refg 1998 Ser I (FSA) ............. 5.00 01/01/23 5,003,000
4,000 Allegheny County Sanitary Authority, Pennsylvania, Sewer Ser 2000
(MBIA) ............................................................. 5.50 12/01/24 4,205,840
5,000 Philadelphia, Pennsylvania, Water & Wastewater Ser 1998 (Ambac) ...... 5.25 12/15/14 5,477,600
See Notes to Financial Statements
11
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS o OCTOBER 31, 2001 CONTINUED
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------------------------------------------------------------------------------------------------------------------------------
Houston, Texas,
$ 15,000 Water & Sewer 1992 Ser C (MBIA) ....................................... 5.75 % 12/01/15 $ 15,728,850
10,000 Water & Sewer Jr Lien Refg Ser 2000 B (FGIC) .......................... 5.25 12/01/30 10,129,300
Seattle, Washington,
10,000 Sewer Refg Ser Y (FGIC) ............................................... 5.70 01/01/15 10,321,500
5,000 Sewer Refg Ser X (FGIC) ............................................... 5.50 01/01/16 5,213,250
5,000 West Virginia Water Development Authority, Loan Program II Refg
Ser A-11 (FSA) ........................................................ 5.50 11/01/23 5,102,350
-------- ------------
85,220 87,305,164
-------- ------------
OTHER REVENUE (0.6%)
3,000 Alexandria Industrial Development Authority, Virginia, Institute for
-------- Defense Analysis Ser 2000 A (Ambac) ................................... 5.90 10/01/30 3,282,210
------------
REFUNDED (7.4%)
6,850 Louisiana Public Facilities Authority, Our Lady of the Lake Regional
Medical Center Ser 1993 D & E (FSA) ................................... 7.70++ 05/28/04+ 8,194,313
6,065 Maine Health & Higher Educational Facilities Authority, Ser 1993 A
(FSA) (ETM) ........................................................... 5.50 07/01/23 6,479,664
4,000 Detroit, Michigan, Water Supply Ser 1999 A (FGIC) ....................... 5.75 01/01/10+ 4,572,440
1,250 Clark County, Nevada, Las Vegas-McCarran Int'l Airport Sub Lien
Ser 1999 A (MBIA) ..................................................... 6.00 07/01/10+ 1,460,400
5,000 Allegheny County Hospital Development Authority, Pennsylvania,
Pittsburgh Mercy Health Ser 1996 (Ambac) (ETM) ........................ 5.625 08/15/18 5,274,700
10,000 Rhode Island Depositors Economic Protection Corporation,
Refg 1992 Ser B (MBIA) (ETM) .......................................... 6.00 08/01/17 10,707,300
4,360 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
-------- (MBIA) (ETM)** ........................................................ 5.375 01/01/25 4,688,831
------------
37,525 41,377,648
-------- ------------
525,140 TOTAL TAX-EXEMPT MUNICIPAL BONDS (COST $517,760,452) .................................................. 547,160,225
-------- ------------
SHORT-TERM TAX-EXEMPT MUNICIPAL OBLIGATION (1.4%)
7,700 Harris County Health Facilities Development Corporation, Texas, St Luke's
Episcopal Hospital Ser 1997 A (Demand 11/01/01) (Cost $7,700,000)...... 1.95* 02/15/31 7,700,000
-------- ------------
$532,840 TOTAL INVESTMENTS (Cost $525,460,452) (a) .............................................. 99.0% 554,860,225
========
OTHER ASSETS IN EXCESS OF LIABILITIES .................................................. 1.0 5,366,103
NET ASSETS ............................................................................. ----- ------------
100.0% $560,226,328
===== ============
See Notes to Financial Statements
12
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
PORTFOLIO OF INVESTMENTS o OCTOBER 31, 2001 CONTINUED
------------
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
WI Security purchased on a "when-issued" basis.
+ Prerefunded to call date shown.
++ Current coupon rate for residual interest bond. This rate resets
periodically as the auction rate on the related short-term security
changes.
* Current coupon of variable rate demand obligation.
** This security is segregated in connection with the purchase of a
"when-issued" security.
(a) The aggregate cost for federal income tax purposes approximates the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $29,424,379 and the aggregate gross unrealized
depreciation is $24,606, resulting in net unrealized appreciation of
$29,399,773.
Bond Insurance:
---------------
Ambac Ambac Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
Geographic Summary of Investments
Based on Market Value as a Percent of Net Assets
Alabama ................ 0.7% Indiana ............ 4.5% Nevada ............... 5.5% Tennessee .......... 1.3%
Arizona ................ 1.9 Kentucky ........... 2.8 New Hampshire ........ 0.7 Texas .............. 11.9
California ............. 3.4 Louisiana .......... 1.5 New Jersey ........... 2.2 Utah ............... 0.7
Colorado ............... 1.7 Maine .............. 2.1 New York ............. 0.6 Virginia ........... 1.6
Connecticut ............ 2.5 Massachusetts ...... 1.9 North Carolina ....... 1.9 Washington ......... 7.0
District of Columbia.... 3.1 Michigan ........... 4.5 Ohio ................. 1.8 West Virginia ...... 1.6
Florida ................ 3.2 Minnesota .......... 0.9 Pennsylvania ......... 8.3 Wisconsin .......... 2.5
Hawaii ................. 1.3 Missouri ........... 1.3 Rhode Island ......... 2.4 ----
Illinois ............... 6.5 Montana ............ 1.0 South Carolina ....... 4.2 Total .............. 99.0%
====
See Notes to Financial Statements
13
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2001
ASSETS:
Investments in securities, at value
(cost $525,460,452).................................................... $554,860,225
Cash ................................................................... 71,015
Interest receivable .................................................... 9,865,965
Prepaid expenses ....................................................... 303,847
------------
TOTAL ASSETS ......................................................... 565,101,052
------------
LIABILITIES:
Payable for:
Investments purchased ................................................ 4,172,920
Dividends to preferred shareholders .................................. 266,943
Investment management fee ............................................ 177,205
Common shares of beneficial interest repurchased ..................... 147,442
Accrued expenses ....................................................... 110,214
------------
TOTAL LIABILITIES .................................................... 4,874,724
------------
NET ASSETS ........................................................... $560,226,328
============
COMPOSITION OF NET ASSETS:
Preferred shares of beneficial interest (1,000,000 shares authorized of
non-participating $.01 par value, 3,100 shares outstanding)............ $155,000,000
------------
Common shares of beneficial interest (unlimited shares authorized of
$.01 par value, 26,284,013 shares outstanding)......................... 379,648,456
Net unrealized appreciation ............................................ 29,399,773
Accumulated undistributed net investment income ........................ 2,258,468
Accumulated net realized loss .......................................... (6,080,369)
------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ......................... 405,226,328
------------
TOTAL NET ASSETS ..................................................... $560,226,328
============
NET ASSET VALUE PER COMMON SHARE
($405,226,328 divided by 26,284,013 common shares outstanding).......... $15.42
======
See Notes to Financial Statements
14
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS CONTINUED
STATEMENT OF OPERATIONS
For the year ended October 31, 2001
NET INVESTMENT INCOME:
INTEREST INCOME ............................... $30,314,082
-----------
EXPENSES
Investment management fee ..................... 1,950,147
Auction commission fees ....................... 504,692
Transfer agent fees and expenses .............. 139,818
Professional fees ............................. 69,499
Auction agent fees ............................ 40,330
Registration fees ............................. 31,694
Shareholder reports and notices ............... 30,753
Trustees' fees and expenses ................... 19,657
Custodian fees ................................ 9,979
Other ......................................... 45,694
-----------
TOTAL EXPENSES .............................. 2,842,263
Less: expense offset (9,979)
-----------
NET EXPENSES ................................ 2,832,284
-----------
NET INVESTMENT INCOME ....................... 27,481,798
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain ............................. 2,882,363
Net change in unrealized appreciation ......... 21,371,132
-----------
NET GAIN .................................... 24,253,495
-----------
NET INCREASE .................................. $51,735,293
===========
See Notes to Financial Statements
15
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
FINANCIAL STATEMENTS CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR
ENDED ENDED
OCTOBER 31, 2001 OCTOBER 31, 2000
------------------ -----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income .......................................................... $ 27,481,798 $ 28,019,164
Net realized gain .............................................................. 2,882,363 954,002
Net change in unrealized appreciation/depreciation ............................. 21,371,132 20,377,877
------------ ------------
NET INCREASE ................................................................. 51,735,293 49,351,043
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Preferred ...................................................................... (5,748,045) (6,116,742)
Common ......................................................................... (20,862,320) (23,811,275)
------------ ------------
TOTAL DIVIDENDS .............................................................. (26,610,365) (29,928,017)
------------ ------------
Decrease from transactions in common shares of beneficial interest ............. (12,411,356) (11,187,324)
------------ ------------
NET INCREASE ................................................................. 12,713,572 8,235,702
NET ASSETS:
Beginning of period ............................................................ 547,512,756 539,277,054
------------ ------------
END OF PERIOD
(Including accumulated undistributed net investment income of $2,258,468 and
$1,387,035, respectively) ...................................................... $560,226,328 $547,512,756
============ ============
See Notes to Financial Statements
16
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS o OCTOBER 31, 2001
1. ORGANIZATION AND ACCOUNTING POLICIES
Morgan Stanley Insured Municipal Income Trust (the "Trust"), formerly Morgan
Stanley Dean Witter Insured Municipal Income Trust (the Trust's name changed
effective December 20, 2001), 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 March 12, 1992 and commenced operations on February 26, 1993.
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.
The following is a summary of significant accounting policies:
A. VALUATION OF INVESTMENTS - Portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service has
informed the Trust that in valuing the portfolio securities, it uses both a
computerized matrix of tax-exempt securities and evaluations by its staff, in
each case based on information concerning market transactions and quotations
from dealers which reflect the bid side of the market each day. The portfolio
securities are thus valued by reference to a combination of transactions and
quotations for the same or other securities believed to be comparable in
quality, coupon, maturity, type of issue, call provisions, trading
characteristics and other features deemed to be relevant. 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.
The Trust amortizes premiums and accretes discounts over the life of the
respective securities. Interest income is accrued daily.
C. FEDERAL INCOME TAX STATUS - 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.
D. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS - The Trust records dividends
and distributions to its shareholders on the ex-dividend date. The amount of
dividends and distributions from net investment
17
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS o OCTOBER 31, 2001 CONTINUED
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.
2. INVESTMENT MANAGEMENT AGREEMENT
Pursuant to an Investment Management Agreement with Morgan Stanley Investment
Advisors Inc. (the "Investment Manager"), formerly Morgan Stanley Dean Witter
Advisors Inc., the Trust pays the Investment Manager a management fee,
calculated weekly and payable monthly, by applying the annual rate of 0.35% to
the Trust's weekly net assets.
3. SECURITY TRANSACTIONS AND TRANSACTIONS WITH AFFILIATES
The cost of purchases and proceeds from sales of portfolio securities,
excluding short-term investments, for the year ended October 31, 2001
aggregated $74,193,962 and $69,750,860, respectively.
Morgan Stanley Trust, an affiliate of the Investment Manager, is the Trust's
transfer agent. At October 31, 2001, the Trust had transfer agent fees and
expenses payable of approximately $3,100.
The Trust has an unfunded noncontributory defined benefit pension plan covering
all independent Trustees of the Trust who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on years of service and compensation during the last five years
of service. Aggregate pension costs for the year ended October 31, 2001
included in Trustees' fees and expenses in the Statement of Operations amounted
to $7,658. At October 31, 2001, the Trust had an accrued pension liability of
$44,300 which is included in accrued expenses in the Statement of Assets and
Liabilities.
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 1 through 5 Auction Rate
Preferred Shares ("Preferred Shares") which have a liquidation value of $50,000
per share plus the redemption premium, if any, plus accumulated but unpaid
dividends, whether or not declared, thereon to the date of distribution. The
Trust may redeem such shares, in whole or in part, at the original purchase
price of $50,000 per share plus accumulated but unpaid dividends, whether or
not declared, thereon to the date of redemption.
18
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS o OCTOBER 31, 2001 CONTINUED
Dividends, which are cumulative, are reset through auction procedures.
AMOUNT IN RESET RANGE OF
SERIES SHARES* THOUSANDS* RATE* DATE DIVIDEND RATES**
------ ------- ---------- ----- --------- -----------------
1 400 $20,000 1.83% 11/05/01 1.83% - 5.05%
2 900 45,000 2.47 09/09/02 2.47 - 4.32
3 1,000 50,000 2.95 07/08/02 2.95 - 4.45
4 400 20,000 2.79 01/07/02 2.45 - 5.05
5 400 20,000 1.83 11/05/01 1.70 - 4.70
------------
* As of October 31, 2001.
** For the year ended October 31, 2001.
Subsequent to October 31, 2001 and up through December 5, 2001, the Trust paid
dividends to each of the Series 1 through 5 at rates ranging from 1.44% to
2.95% in the aggregate amount of $612,158.
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, 1999 ............................................... 28,064,113 $280,641 $ 402,966,495
Treasury shares purchased and retired (weighted average discount 7.07%)* (872,400) (8,724) (11,178,600)
---------- -------- -------------
Balance, October 31, 2000 ............................................... 27,191,713 271,917 391,787,895
Treasury shares purchased and retired (weighted average discount 8.88%)* (907,700) (9,077) (12,402,279)
---------- -------- -------------
Balance, October 31, 2001 ............................................... 26,284,013 $262,840 $ 379,385,616
========== ======== =============
------------
* The Trustees have voted to retire the shares purchased.
19
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
NOTES TO FINANCIAL STATEMENTS o OCTOBER 31, 2001 CONTINUED
6. FEDERAL INCOME TAX STATUS
During the year ended October 31, 2001, the Trust utilized approximately
$2,883,000 of its net capital loss carryover. At October 31, 2001, the Trust
had a net capital loss carryover of approximately $6,080,000 to offset future
capital gains to the extent provided by regulations, available through October
31 of the following years:
AMOUNT IN THOUSANDS
--------------------------
2002 2003 2004
------ ------ ------
$1,047 $4,412 $621
====== ====== ====
7. DIVIDENDS TO COMMON SHAREHOLDERS
On October 30, 2001, the Trust declared the following dividends from net
investment income:
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ------------------ -----------------
$0.0675 November 9, 2001 November 23, 2001
$0.0675 December 7, 2001 December 21, 2001
8. EXPENSE OFFSET
The expense offset represents a reduction of custodian fees for earnings on
cash balances maintained by the Trust.
9. RISKS RELATING TO CERTAIN FINANCIAL INSTRUMENTS
The Trust may invest a portion of its assets in residual interest bonds, which
are inverse floating rate municipal obligations. The prices of these securities
are subject to greater market fluctuations during periods of changing
prevailing interest rates than are comparable fixed rate obligations.
At October 31, 2001, the Trust held positions in residual interest bonds having
a total value of $30,661,813, which represents 5.5% of the Trust's net assets.
10. CHANGE IN ACCOUNTING POLICY
Effective November 1, 2001, the Trust will adopt the provisions of the AICPA
Audit and Accounting Guide for Investment Companies, as revised, related to
premiums and discounts on debt securities. The cumulative effect of this
accounting change will have no impact on the net assets of the Trust, but will
result in an adjustment to the cost of securities and a corresponding
adjustment to undistributed net investment income based on securities held as
of October 31, 2001.
20
MORGAN STANLEY INSURED MUNICIPAL INCOME 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*
--------------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ----------- ---------- ----------
SELECTED PER SHARE DATA:
Net asset value, beginning of period ................... $14.44 $ 13.69 $15.47 $ 14.69 $13.86
------ ------- ------ ------- ------
Income (loss) from investment operations:
Net investment income ................................. 1.03 1.01 1.01 1.00 1.00
Net realized and unrealized gain (loss) ............... 0.90 0.79 (1.77) 0.71 0.70
------ ------- ------ ------- ------
Total income (loss) from investment operations ......... 1.93 1.80 (0.76) 1.71 1.70
------ ------- ------ ------- ------
Less dividends from:
Net investment income ................................. (0.78) (0.86) (0.84) (0.78) (0.78)
Common share equivalent of dividends paid to
preferred shareholders ............................... (0.22) (0.22) (0.19) (0.20) (0.19)
------ ------- ------ ------- ------
Total dividends ........................................ (1.00) (1.08) (1.03) (0.98) (0.97)
------ ------- ------ ------- ------
Anti-dilutive effect of acquiring treasury shares ...... 0.05 0.03 0.01 0.05 0.10
------ ------- ------ ------- ------
Net asset value, end of period ......................... $15.42 $ 14.44 $13.69 $ 15.47 $14.69
====== ======= ====== ======= ======
Market value, end of period ............................ $14.13 $12.813 $13.25 $14.813 $13.25
====== ======= ====== ======= ======
TOTAL RETURN+ .......................................... 16.70% 3.29% (5.17)% 18.27% 21.21%
RATIOS TO AVERAGE NET ASSETS OF COMMON
SHAREHOLDERS:
Expenses (before expense offset) ....................... 0.71% 0.73% 0.70 % 0.69% 0.68%(1)
Net investment income before preferred
stock dividends ....................................... 6.84% 7.27% 6.71 % 6.60% 7.04%
Preferred stock dividends .............................. 1.43% 1.59% 1.26 % 1.30% 1.31%
Net investment income available to common
shareholders .......................................... 5.41% 5.68% 5.45 % 5.30% 5.73%
SUPPLEMENTAL DATA:
Net assets, end of period, in thousands ................ $560,226 $547,513 $539,277 $594,807 $589,728
Asset coverage on preferred shares at
end of period ......................................... 361% 352% 347 % 383% 380%
Portfolio turnover rate ................................ 13% 11% 5 % 7% 2%
------------
* The per share amounts were computed using an average number of shares
outstanding during the period.
+ Total return is based upon the current market value on the last day of each
period reported. Dividends are assumed to be reinvested at the prices
obtained under the Trust's dividend reinvestment plan. Total return does
not reflect brokerage commissions.
(1) Does not reflect the effect of expense offset of 0.01%.
See Notes to Financial Statements
21
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
MORGAN STANLEY INSURED MUNICIPAL INCOME TRUST:
We have audited the accompanying statement of assets and liabilities of Morgan
Stanley Insured Municipal Income Trust (the "Trust"), formerly Morgan Stanley
Dean Witter Insured Municipal Income Trust, including the portfolio of
investments, as of October 31, 2001, and the related statement of operations
for the year then ended, the statements of changes in net assets for each of
the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of October 31, 2001, by
correspondence with the custodian and broker. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Morgan Stanley Insured Municipal Income Trust as of October 31, 2001, 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 20, 2001
--------------------------------------------------------------------------------
2001 Federal Tax Notice (unaudited)
For the year ended October 31, 2001, all of the Trust's dividends from net
investment income received by both common and preferred shareholder classes
were exempt interest dividends, excludable from gross income for Federal
income tax purposes.
--------------------------------------------------------------------------------
22
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TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Michael E. Nugent
Philip J. Purcell
John L. Schroeder
OFFICERS
Charles A. Fiumefreddo
Chairman and Chief Executive Officer
Mitchell M. Merin
President
Barry Fink
Vice President, Secretary and General Counsel
James F. Willison
Vice President
Thomas F. Caloia
Treasurer
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center - Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT MANAGER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
[MORGAN STANLEY LOGO]
[GRAPHIC OMITTED]
MORGAN STANLEY
INSURED MUNICIPAL
INCOME TRUST
ANNUAL REPORT
October 31, 2001