Morgan Stanley Insured Municipal Income Trust
Letter to the Shareholders o April 30, 2002
Dear Shareholder:
During the six-month period ended April 30, 2002, the U.S. economy began to
recover from recession and the aftermath of September 11. Consumer spending and
rebuilding of business inventories led an economic rebound in the first quarter
of 2002. In spite of April's six percent unemployment rate, the relatively mild
recession, which began in March 2001, is widely regarded as having ended.
The economic turnaround was fueled by monetary and fiscal policies, which
sought to stimulate growth. The Federal Reserve Board's aggressive monetary
policy cut the benchmark federal funds rate by 475 basis points in 2001 to its
current level of 1.75 percent. Congress provided fiscal stimulus by passing
reductions in personal tax rates as well as a number of spending initiatives
after the September attacks.
The Fed's actions and the Treasury Department's cessation of the 30-year bond
auction led to a bond-market rally that dropped long-term interest rates to
40-year lows at the end of October. Within the fixed-income market, yields on
short maturities declined the most and the yield curve steepened. In November
and December, as the economy improved, the bond market reversed course and
yields increased. Demand for fixed-income investments revived in 2002, because
of stock-market volatility and Federal Reserve Chairman Alan Greenspan's
comments that the Fed would take a go-slow approach to tightening monetary
policy.
Municipal Market Conditions
The yield on the 30-year insured municipal bond index, which reached a low of
5.04 percent in October 2001, increased to 5.45 percent in March. As the Fed's
outlook shifted to neutral, the index yield declined to 5.30 percent in April.
Throughout the period, the slope of the municipal yield curve remained
positive. The yield pick up for extending maturities from one to 30 years was
335 basis points versus 240 basis points last April.
The ratio of municipal yields as a percentage of U.S. Treasury yields is used
as a gauge of the relative value of municipals. A declining yield ratio
indicates stronger relative performance by municipals. The ratio of 30-year
municipal bond yields to 30-year Treasuries jumped to 104 percent in October
2001. By the end of April the ratio had returned to 94 percent. In the
10-year-maturity range, the ratio declined from 95 percent in October to 85
percent in April.
New-issue volume increased 43 percent, to $286 billion, during 2001. State and
local government infrastructure and cash flow needs have contributed to the
surge in underwriting activity. Refunding issues, the most
interest-rate-sensitive category of underwriting, represented almost
one-quarter of the total. California, Florida, New York and Texas, the four
states with the heaviest issuance, accounted for 33 percent of national volume.
New-issue volume for the first four months of 2002 reached $87 billion.
Morgan Stanley Insured Municipal Income Trust
Letter to the Shareholders o April 30, 2002 continued
30-Year Bond Yields 1997-2002
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%
5/31/97 5.65 6.91 81.77%
6/30/97 5.60 6.78 82.60%
7/31/97 5.25 6.29 83.47%
8/31/97 5.48 6.61 82.90%
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%
5/31/98 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%
12/31/01 5.36 5.47 97.99%
1/31/02 5.22 5.43 96.13%
2/28/02 5.14 5.42 94.83%
3/31/02 5.43 5.80 93.62%
4/30/02 5.30 5.59 94.81%
Source: Municipal Market Data - A Division of Thomson Financial Municipal Group
and Bloomberg L.P.
Performance
During the six-month period ended April 30, 2002, the net asset value (NAV) of
Morgan Stanley Insured Municipal Income Trust (IIM) decreased from $15.42 to
$15.16 per share. Based on this change, plus a reinvestment of tax-free
dividends totaling $0.405 per share, the Trust's total NAV return was 1.21
percent. IIM's value on the New York Stock Exchange (NYSE) decreased from
$14.13 to $13.93 per share during this period. Based on this change plus
reinvestment of tax-free dividends, IIM's total market return was 1.49 percent.
As of April 30, 2002, IIM's share price was at an 8.11 percent discount to its
NAV.
Monthly dividends for the second quarter of 2002, declared in March, were
unchanged at $0.0675 per share. The Trust's level of undistributed net
investment income was $0.136 per share on April 30, 2002, versus $0.086 per
share six months earlier. Current earnings continued to benefit from lower
short-term borrowing costs of Auction Rate Preferred Shares (ARPS).
2
Morgan Stanley Insured Municipal Income Trust
Letter to the Shareholders o April 30, 2002 continued
Portfolio Structure
The Trust's total net assets of $546.7 million were diversified among 13
long-term sectors and 80 credits. At the end of April, the portfolio's average
maturity was 19 years. Average duration, a measure of sensitivity to
interest-rate changes, was 5.5 years. The accompanying charts provide current
information on the portfolio's credit enhancements, maturity distribution,
sector allocation and geographic concentration. Optional redemption provisions
by year of the call and respective cost (book) yields are also charted.
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 six-month period, ARPS leverage contributed approximately $0.08 per
share to common share earnings. IIM has five ARPS series totaling $155 million
and representing 28 percent of total net assets. The yields on IIM's weekly
ARPS series ranged between 0.90 and 2.05 percent. The yields on the ARPS series
with auctions maturing in July 2002, September 2002 and January 2004 were 2.95
percent, 2.47 percent and 2.47 percent, respectively.
Looking Ahead
The Federal Reserve Board's cautious approach toward tightening has helped
stabilize the fixed-income markets. However, we believe that the economic
recovery will eventually lead the Fed to raise short-term interest rates.
Despite market uncertainty, we believe that the relationship between high-grade
tax-exempt securities and Treasuries continues to favor municipal bonds as an
attractive choice for tax-conscious investors.
The Trust's procedure for reinvesting all dividends and distributions in common
shares is through purchases in the open market. This method helps support the
market value of the Trust's shares. In addition, we would like to remind you
that the Trustees have approved a procedure whereby the Trust may, when
appropriate, purchase shares in the open market or in privately negotiated
transactions at a price not above market value or net asset value, whichever is
lower at the time of purchase. The Trust may also utilize procedures to reduce
or eliminate the amount of outstanding ARPS, including their
3
Morgan Stanley Insured Municipal Income Trust
Letter to the Shareholders o April 30, 2002 continued
purchase in the open market or in privately negotiated transactions. During the
six-month period ended April 30, 2002 the Trust purchased and retired 452,100
shares of common stock at a weighted average market discount of 8.16 percent.
We would like to take this opportunity to notify shareholders that in January
2002, Joseph R. Arcieri and Robert W. Wimmel joined James F. Willison as
portfolio managers for the Trust.
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 April 30, 2002 continued
[GRAPHICS OMITTED]
LARGEST SECTORS as of April 30, 2002 CREDIT ENHANCEMENTS as of April 30, 2002
(% of Long-Term Portfolio) (% of Long-Term Portfolio)
Transportation 16% MBIA 34%
Electric 14% FGIC 27%
Water & Sewer 14% Ambac 20%
General Obligation 12% FSA 19%
Hospital 11%
Refunded 8%
IDR/PCR* 7%
Mortgage 6%
* Industrial Development/Pollution Control Revenue.
Portfolio structure is subject to change. Portfolio structure is subject to change.
DISTRIBUTION BY MATURITY
(% of Long-Term Portfolio)
1-5 Years 1.5%
5-10 Years 4.6% WEIGHTED AVERAGE
10-20 Years 51.5% MATURITY: 19 YEARS
20-30 Years 37.0%
30 + Years 5.4%
Portfolio structure is subject to change.
5
Morgan Stanley Insured Municipal Income Trust
Letter to the Shareholders o April 30, 2002 continued
[GRAPHIC OMITTED]
CALL AND COST (BOOK) YIELD STRUCTURE
(BASED ON LONG-TERM PORTFOLIO)
APRIL 30, 2002
PERCENT CALLABLE WEIGHTED AVERAGE
CALL PROTECTION: 5 YEARS
2002 10%
2003 45%
2004 1%
2005 2%
2006 1%
2007 1%
2008 3%
2009 5%
2010 11%
2011 10%
2012+ 11%
YEARS BONDS CALLABLE
COST (BOOK) YIELD*
WEIGHTED AVERAGE
2002 5.9% BOOK YIELD: 5.7%
2003 5.9%
2004 5.9%
2005 5.9%
2006 5.8%
2007 5.6%
2008 5.3%
2009 5.7%
2010 5.6%
2011 5.2%
2012+ 5.2%
* 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 5.9% ON 10% OF THE
LONG-TERM PORTFOLIO THAT IS CALLABLE IN 2002.
PORTFOLIO STRUCTURE IS SUBJECT TO CHANGE.
6
Morgan Stanley Insured Municipal Income Trust
Letter to the Shareholders o April 30, 2002 continued
Geographic Summary of Investments
Based on Market Value as a Percent of Total Investments
Alabama ................................... 0.8%
Arizona ..................................... 2.0
California ................................. 3.5
Colorado ................................... 1.8
Connecticut ................................ 2.6
District of Columbia......................... 3.2
Florida .................................... 3.3
Hawaii ...................................... 1.3
Idaho ...................................... 1.0
Illinois .................................... 6.6
Indiana .................................... 4.7
Kentucky ................................... 3.5
Louisiana .................................. 1.5
Maine ....................................... 2.1
Massachusetts ............................... 4.7
Michigan .................................... 4.6
Minnesota ................................... 0.9
Missouri ................................... 1.8
Montana ..................................... 1.0
Nevada ...................................... 4.3
New Hampshire .............................. 0.7
New Jersey .................................. 2.3
New York ................................... 0.6
North Carolina ............................. 1.9
Ohio ....................................... 1.3
Pennsylvania ................................ 8.6
Rhode Island ................................ 2.5
South Carolina ............................. 4.3
Tennessee .................................. 0.8
Texas ...................................... 7.3
Utah ....................................... 0.8
Virginia .................................... 1.5
Washington .................................. 8.0
West Virginia ............................... 1.7
Wisconsin ................................... 2.5
-----
Total ....................................... 100.0%
=====
7
Morgan Stanley Insured Municipal Income Trust
Portfolio of Investments o April 30, 2002 (unaudited)
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
----------------------------------------------------------------------------------------------------------------------------
Tax-Exempt Municipal Bonds (131.6%)
General Obligation (16.4%)
District of Columbia,
$ 5,000 Refg Ser 1993 B (Ambac) ............................................. 5.50 % 06/01/09 $ 5,465,100
6,000 Refg Ser 1993 B (FSA) ............................................... 5.50 06/01/10 6,555,660
15,000 Chicago, Illinois, Neighborhoods Alive 21 Ser 2001 A (FGIC) ........... 5.50 01/01/36 15,145,950
7,000 Cook County, Illinois, Ser B (FGIC) ................................... 5.50 11/15/22 7,067,410
3,000 Massachusetts, 2002 Ser B (FSA) ....................................... 5.50 03/01/17 3,174,960
5,000 River Rouge School District, Michigan, 1993 Bldg & Site Unltd Tax
(FSA) ............................................................... 5.625 05/01/22 5,100,100
3,000 Vicksburg Community Schools, Michigan, 1993 Refg (MBIA) ............... 5.625 05/01/20 3,054,180
6,000 Clark County Sanitation District, Nevada, Refg 1993 (FGIC) ............ 5.70 07/01/12 6,277,380
8,000 Washoe County, Nevada, Reno - Sparks Convention Ltd Tax
Ser 1993 A (FGIC) ................................................... 5.75 07/01/22 8,173,200
4,000 Houston, Texas, Public Improvement & Refg Ser 2001 B (FSA) ............ 5.50 03/01/17 4,187,680
--------- ------------
62,000 64,201,620
--------- ------------
Educational Facilities Revenue (4.5%)
4,000 Alabama State University, General Tuition & Fee Ser 1993 (MBIA) ....... 5.70 05/01/15 4,227,920
3,000 District of Columbia, American Association for the Advancement of
Science Ser 1997 (Ambac) ............................................ 5.125 01/01/27 2,911,890
4,000 Illinois Educational Facilities Authority, DePaul University
Refg Ser 1997 (Ambac) ............................................... 5.50 10/01/19 4,112,560
4,000 New Hampshire Health & Education Facilities Authority, University of
New Hampshire Ser 2001 (Ambac) ...................................... 5.125 07/01/33 3,881,640
2,500 Rhode Island Health & Educational Building Corporation, Providence
College Ser 1993 (MBIA) ............................................. 5.60 11/01/15 2,604,150
--------- ------------
17,500 17,738,160
--------- ------------
Electric Revenue (19.0%)
8,000 Redding, California, Ser 1993 A COPs (FGIC) ........................... 9.766++ 06/01/19 8,569,120
5,000 Massachusetts Municipal Wholesale Electric Company, 1993 Ser A
(Ambac) ............................................................. 5.00 07/01/10 5,341,650
3,000 New York State Energy Research & Development Authority,
Brooklyn Union Gas Co Ser 1991 Ser D (AMT) (MBIA) ................... 9.526++ 07/08/26 3,024,600
10,000 North Carolina Municipal Power Agency #1, Catawba Ser 1993
(MBIA) .............................................................. 9.22++ 01/01/20 10,247,000
3,000 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
(MBIA) .............................................................. 5.375 01/01/25 3,049,140
See Notes to Financial Statements
8
Morgan Stanley Insured Municipal Income Trust
Portfolio of Investments o April 30, 2002 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------------------------
$ 10,000 South Carolina Public Service Authority, 1993 Refg Ser A (MBIA) ...... 5.50 % 07/01/21 $ 10,100,400
Lower Colorado River Authority, Texas,
10,000 Refg Ser 1999 A (FSA) .............................................. 5.875 05/15/16 10,813,100
5,000 Refg Ser 2001 (FSA) ................................................ 5.00 05/15/26 4,771,200
10,000 Washington Public Power Supply System, Nuclear Proj #1
Refg Ser 1993 A (MBIA) ............................................. 5.70 07/01/17 10,357,000
8,000 Wisconsin Public Power, Refg Ser 1993 A (Ambac) ...................... 5.25 07/01/21 8,015,600
--------- ------------
72,000 74,288,810
--------- ------------
Hospital Revenue (14.5%)
5,000 Mesa Industrial Development Authority, Arizona, Discovery Health
Ser 1999 A (MBIA) .................................................. 5.875 01/01/16 5,439,600
2,100 District of Columbia, Children's Hospital Refg Ser 1992 A (FGIC) ..... 6.25 07/15/10 2,159,766
5,000 Sarasota County Public Hospital Board, Florida, Sarasota Memorial
Hospital Refg Ser 1998 B (MBIA)) ................................... 5.25 07/01/24 5,032,300
3,000 Indiana Health Facilities Financing Authority, Deaconess Hospital Inc
Refg Ser 1993 (MBIA) ............................................... 5.75 03/01/15 3,075,300
5,000 Kentucky Economic Development Finance Authority, St Elizabeth
Medical Center Inc Ser 1993 A (FGIC) ............................... 6.00 12/01/22 5,274,500
3,935 Maine Health & Higher Educational Facilities Authority, Ser 1993 A
(FSA) .............................................................. 5.50 07/01/23 3,958,492
5,500 Massachusetts Health & Educational Facilities Authority,
Lahey Clinic Medical Center Ser B (MBIA) ........................... 5.625 07/01/15 5,638,050
4,000 Missouri Health & Educational Facilities Authority, SSM Health Care
Ser 1998 A (MBIA) .................................................. 5.00 06/01/22 3,905,720
4,000 Washington County Hospital Authority, Pennsylvania, Washington
Hospital Ser 1993 (Ambac) .......................................... 5.625 07/01/23 4,039,480
4,000 Chattanooga-Hamilton County Hospital Authority, Tennessee,
Erlanger Medical Center Refg Ser 1993 (FSA) ........................ 5.50 10/01/13 4,117,640
Amarillo Health Facilities Corporation, Texas,
3,020 Baptist St Anthony's Hospital Ser 1998 (FSA) ....................... 5.50 01/01/16 3,177,191
5,075 Baptist St Anthony's Hospital Ser 1998 (FSA) ....................... 5.50 01/01/17 5,298,554
5,500 Wisconsin Health & Educational Facilities Authority, Sisters of the
Sorrowful Mother Health Care Ser AA (MBIA) ......................... 6.25 06/01/20 5,626,390
--------- ------------
55,130 56,742,983
--------- ------------
See Notes to Financial Statements
9
Morgan Stanley Insured Municipal Income Trust
Portfolio of Investments o April 30, 2002 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------------------------
Industrial Development/Pollution Control Revenue (9.2%)
$ 7,500 Adams County, Colorado, Public Service Co of Colorado
Refg 1993 Ser A (MBIA) ................................................. 5.875% 04/01/14 $ 7,764,075
5,000 Hawaii Department of Budget and Finance, Hawaiian Electric Co
Ser 1999 C (AMT) (Ambac) ............................................... 6.20 11/01/29 5,339,000
12,000 Indiana Development Finance Authority, PSI Energy Inc Ser 1993 B
(AMT) (MBIA) ........................................................... 5.75 02/15/28 12,113,520
4,900 Monroe County, Michigan, Detroit Edison Co Ser CC (AMT) (MBIA) ........... 6.55 06/01/24 5,169,353
5,400 Forsyth, Montana, Puget Sound Power & Light Co Ser 1993 (MBIA) ........... 5.875 04/01/20 5,577,498
--------- ------------
34,800 35,963,446
--------- ------------
Mortgage Revenue - Multi-Family (1.0%)
4,000 West Virginia Housing Development Fund, Ser A (Ambac) .................... 5.65 11/01/21 4,025,200
--------- ------------
Mortgage Revenue - Single Family (7.0%)
13,575 Connecticut Housing Finance Authority, 1992 Ser A-2 (AMT)
(Secondary FSA) ........................................................ 6.05 11/15/25 13,755,819
1,195 Maine Housing Authority, Mortgage Purchase 1990 Ser A-6 (AMT)
(Secondary MBIA) ....................................................... 6.35 11/15/22 1,224,337
12,500 New Jersey Housing & Mortgage Finance Agency, Home Buyer
1990 Ser F-3 (AMT) (MBIA) .............................................. 5.95 04/01/25 12,521,250
--------- ------------
27,270 27,501,406
--------- ------------
Public Facilities Revenue (5.4%)
5,000 Miami-Dade County School Board, Florida, Ser 2001 A COPs (MBIA)........... 5.00 05/01/31 4,829,300
3,000 Orange County School Board, Florida, Ser 2001 A COPs (Ambac) ............. 5.25 08/01/14 3,202,200
10,000 Marion County Convention & Recreational Facilities Authority, Indiana,
Excise Tax Refg Ser 1993 A (Ambac) ..................................... 5.50 06/01/21 10,035,000
Kentucky Property & Building Commission, Project #74
1,660 Refg Ser 2002 A (FSA) .................................................. 5.375 02/01/17 1,730,882
1,500 Refg Ser 2002 A (FSA) .................................................. 5.375 02/01/18 1,554,600
--------- ------------
21,160 21,351,982
--------- ------------
Student Loan Revenue (4.7%)
18,000 Pennsylvania State Higher Education Assistant Agency, 1988 Ser D
--------- (AMT) (Ambac) .......................................................... 6.05 01/01/19 18,440,280
------------
See Notes to Financial Statements
10
Morgan Stanley Insured Municipal Income Trust
Portfolio of Investments o April 30, 2002 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------------------------
Transportation Facilities Revenue (20.7%)
$ 5,000 Tucson, Arizona, Street & Highway Jr Lien Refg Ser 1993 (MBIA) ......... 5.50 % 07/01/12 $ 5,263,400
9,000 Long Beach California, Harbor Refg Ser 1998 A (AMT) (FGIC) ............. 6.00 05/15/18 10,080,090
5,000 Chicago, Illinois, Chicago-O'Hare Int'l Airport Second Lien
Refg 1993 Ser A (AMT) (MBIA) ......................................... 5.60 01/01/18 5,034,350
4,000 Illinois Toll Highway Authority, Priority Refg 1998 Ser A (FSA) ........ 5.50 01/01/15 4,326,480
5,000 Minneapolis-St Paul Metropolitan Airports Commission, Minnesota,
Ser 2001 C (FGIC) .................................................... 5.25 01/01/32 4,984,700
3,250 St Louis, Missouri, Lambert Int'l Airport Ser 2001 A (MBIA) ............ 5.00 07/01/20 3,215,355
9,000 Nevada Department of Business & Industry, Las Vegas Monorail
1st Tier Ser 2000 (Ambac) ............................................ 5.375 01/01/40 8,920,260
5,000 Cleveland, Ohio, Airport Ser 2000 A (FSA) .............................. 5.00 01/01/31 4,815,450
9,000 Pennsylvania Turnpike Commission, Refg Ser O 1992 (FGIC) ............... 5.50 12/01/17 9,157,680
5,000 South Carolina Transportation Infrastructure Bank, Ser 1999 A
(Ambac) .............................................................. 5.50 10/01/16 5,293,100
4,000 Salt Lake City, Utah, Airport Refg Ser 1993 B (FGIC) ................... 5.875 12/01/18 4,158,920
3,000 Richmond Metropolitan Authority, Virginia Refg Ser 2002 (FGIC) ......... 5.25 07/15/22 3,098,340
Port of Seattle, Washington,
5,000 Ser 2001 B (AMT) (MBIA) .............................................. 5.625 02/01/24 5,080,300
8,000 Ser 2001 A (FGIC) .................................................... 5.00 04/01/31 7,534,000
--------- ------------
79,250 80,962,425
--------- ------------
Water & Sewer Revenue (18.4%)
1,750 Colorado Water Resources & Power Development Authority,
Water Resources 2001 Ser A (FGIC) .................................... 4.875 11/01/23 1,687,858
5,000 Tampa Bay Water Authority, Florida, Ser 2001 A (FGIC) .................. 5.00 10/01/28 4,846,550
2,000 Honolulu City and County, Hawaii, Wastewater Sr Ser 1998 (FGIC) ........ 4.75 07/01/28 1,830,060
10,000 Louisville & Jefferson County Metropolitan Sewer District, Kentucky,
Ser 1993 (MBIA) ...................................................... 5.30 05/15/19 10,070,000
2,470 Detroit, Michigan, Sewage Refg Ser 1993 A (FGIC) ....................... 5.70 07/01/13 2,589,573
5,000 Grand Rapids, Michigan, Sewer Impr & Refg Ser 1998 A (FGIC) ............ 4.75 01/01/28 4,554,300
2,000 Cleveland, Ohio, Waterworks Impr & Refg 1998 Ser I (FSA) ............... 5.00 01/01/23 1,966,960
4,000 Allegheny County Sanitary Authority, Pennsylvania, Sewer Ser 2000
(MBIA) ............................................................... 5.50 12/01/24 4,129,440
5,000 Philadelphia, Pennsylvania, Water & Wastewater Ser 1998 (Ambac) ........ 5.25 12/15/14 5,362,900
10,000 Houston, Texas, Water & Sewer Jr Lien Refg Ser 2000 B (FGIC) , ......... 5.25 12/01/30 9,810,800
5,000 King County, Washington, Sewer Refg 2001 (FGIC) ........................ 5.00 01/01/31 4,709,650
See Notes to Financial Statements
11
Morgan Stanley Insured Municipal Income Trust
Portfolio of Investments o April 30, 2002 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------------------------
Seattle, Washington,
$ 10,000 Sewer Refg Ser Y (FGIC) ............................................. 5.70 % 01/01/15 $ 10,234,300
5,000 Sewer Refg Ser X (FGIC) ............................................. 5.50 01/01/16 5,165,050
5,000 West Virginia Water Development Authority, Loan Program II
Refg Ser A-11 (FSA) ................................................. 5.50 11/01/23 5,057,000
-------- ------------
72,220 72,014,441
-------- ------------
Other Revenue (0.8%)
3,000 Alexandria Industrial Development Authority, Virginia, Institute for
-------- Defense Analysis Ser 2000 A (Ambac) ................................. 5.90 10/01/30 3,216,180
------------
Refunded (10.0%)
6,850 Louisiana Public Facilities Authority, Our Lady of the Lake Regional
Medical Center Ser 1993 D & E (FSA) ................................. 8.385++ 05/28/04+ 8,042,585
6,065 Maine Health & Higher Educational Facilities Authority, Ser 1993 A
(FSA) (ETM) ......................................................... 5.50 07/01/23 6,312,270
4,000 Detroit, Michigan, Water Supply Ser 1999 A (FGIC) ..................... 5.75 01/01/10+ 4,482,040
5,000 Allegheny County Hospital Development Authority, Pennsylvania,
Pittsburgh Mercy Health Ser 1996 (Ambac) (ETM) ...................... 5.625 08/15/18 5,213,050
10,000 Rhode Island Depositors Economic Protection Corporation,
Refg 1992 Ser B (MBIA) (ETM) ........................................ 6.00 08/01/17 10,603,100
4,360 Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993
(MBIA) (ETM) ........................................................ 5.375 01/01/25 4,525,680
-------- ------------
36,275 39,178,725
-------- ------------
502,605 Total Tax-Exempt Municipal Bonds (Cost $496,104,709) ........................................... 515,625,658
-------- ------------
See Notes to Financial Statements
12
Morgan Stanley Insured Municipal Income Trust
Portfolio of Investments o April 30, 2002 (unaudited) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
-----------------------------------------------------------------------------------------------------------------------------
Short-Term Tax-Exempt Municipal Obligations (5.6%)
$ 5,300 Idaho Health Facilities Authority, St Lukes Regional Medical Center
Ser 2000 (FSA) (Demand 05/01/02) ................................ 1.65*% 07/01/30 $ 5,300,000
11,300 Massachusetts Health & Educational Facilities Authority, Capital
Asset, Ser D (MBIA) (Demand 05/01/02) ........................... 1.65* 01/01/35 11,300,000
2,400 Missouri Health & Educational Facilities Authority, Washington
University Ser 2000 B (Demand 05/01/02) ......................... 1.70* 03/01/40 2,400,000
1,275 North Central Texas Health Facilities Development Corporation,
Texas, Presbyterian Medical Center Ser 1985 D (MBIA)
(Demand 05/01/02) ............................................... 1.66* 12/01/15 1,275,000
1,665 Richmond Metropolitan Authority, Virginia, Expressway 1992 Ser B
(FGIC) .......................................................... 6.25 07/15/02+ 1,709,655
-------- --------------
21,940 Total Short-Term Tax-Exempt Municipal Obligations (Cost $21,974,917).......................... 21,984,655
-------- --------------
$524,545 Total Investments (Cost $518,079,626) (a)..................................... 137.2% 537,610,313
========
Other Assets in Excess of Liabilities ........................................ 2.3 9,109,293
Preferred Shares of Beneficial Interest ...................................... (39.5) (155,000,000)
------ --------------
Net Assets Applicable to Common Shareholders ................................. 100.0% $ 391,719,606
==============
------------
Note: The categories of investments are shown as a percentage of net assets
applicable to common shareholders.
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
ETM Escrowed to maturity.
+ 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
fluctuates.
* Current coupon of variable rate demand obligation.
(a) The aggregate cost for federal income tax purposes approximates the
aggregate cost for book purposes. The aggregate gross unrealized
appreciation is $20,880,908 and the aggregate gross unrealized
depreciation is $1,350,221, resulting in net unrealized appreciation of
$19,530,687.
Bond Insurance:
---------------
Ambac Ambac Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
See Notes to Financial Statements
13
Morgan Stanley Insured Municipal Income Trust
Portfolio of Investments o April 30, 2002 (unaudited) continued
Geographic Summary of Investments
Based on Market Value as a Percent of Net Assets
Applicable to Common Shareholders
Alabama ................................ 1.1%
Arizona ................................ 2.7
California ............................. 4.8
Colorado ............................... 2.4
Connecticut ............................ 3.5
District of Columbia.................... 4.4
Florida ................................ 4.6
Hawaii ................................. 1.8
Idaho .................................. 1.3
Illinois .............................. 9.1
Indiana ............................... 6.4
Kentucky ............................... 4.8
Louisiana .............................. 2.1
Maine ................................. 2.9
Massachusetts ......................... 6.5
Michigan ............................... 6.4
Minnesota .............................. 1.3
Missouri .............................. 2.4
Montana ............................... 1.4
Nevada ................................. 6.0
New Hampshire .......................... 1.0
New Jersey ............................. 3.2
New York ............................... 0.8
North Carolina ......................... 2.6
Ohio .................................. 1.7
Pennsylvania ........................... 11.8
Rhode Island ........................... 3.4
South Carolina ......................... 5.9
Tennessee .............................. 1.0
Texas ................................. 10.0
Utah .................................. 1.1
Virginia .............................. 2.0
Washington ............................. 11.0
West Virginia .......................... 2.3
Wisconsin ............................. 3.5
-----
Total ................................. 137.2%
=====
See Notes to Financial Statements
14
Morgan Stanley Insured Municipal Income Trust
Financial Statements
Statement of Assets and Liabilities
April 30, 2002 (unaudited)
Assets:
Investments in securities, at value
(cost $518,079,626).................................................... $537,610,313
Cash ................................................................... 31,264
Interest receivable .................................................... 9,383,269
Prepaid expenses ....................................................... 285,316
------------
Total Assets ......................................................... 547,310,162
------------
Liabilities:
Payable for:
Dividends to preferred shareholders .................................. 253,721
Investment management fee ............................................ 203,881
Common shares of beneficial interest repurchased ..................... 27,757
Accrued expenses ....................................................... 105,197
------------
Total Liabilities .................................................... 590,556
------------
Preferred shares of beneficial interest (1,000,000 shares authorized of
non-participating $.01 par value, 3,100 shares outstanding)............ 155,000,000
------------
Net Assets Applicable to Common Shareholders ......................... $391,719,606
============
Composition of Net Assets Applicable to Common Shareholders:
Common shares of beneficial interest (unlimited shares authorized of
$.01 par value, 25,831,913 shares outstanding)......................... $373,375,553
Net unrealized appreciation ............................................ 19,530,687
Accumulated undistributed net investment income ........................ 3,522,970
Accumulated net realized loss .......................................... (4,709,604)
------------
Net Assets Applicable to Common Shareholders ......................... $391,719,606
============
Net Asset Value Per Common Share,
($391,719,606 divided by 25,831,913 common shares outstanding).......... $15.16
======
See Notes to Financial Statements
15
Morgan Stanley Insured Municipal Income Trust
Financial Statements continued
Statement of Operations
For the six months ended April 30, 2002 (unaudited)
Net Investment Income:
Interest Income ........................................................ $ 14,949,658
------------
Expenses
Investment management fee .............................................. 956,258
Auction commission fees ................................................ 267,651
Transfer agent fees and expenses ....................................... 47,791
Professional fees ...................................................... 31,420
Shareholder reports and notices ........................................ 24,556
Auction agent fees ..................................................... 19,326
Registration fees ...................................................... 11,093
Trustees' fees and expenses ............................................ 10,529
Custodian fees ......................................................... 4,538
Other .................................................................. 24,232
------------
Total Expenses ....................................................... 1,397,394
Less: expense offset ................................................... (4,510)
------------
Net Expenses ......................................................... 1,392,884
------------
Net Investment Income ................................................ 13,556,774
------------
Net Realized and Unrealized Gain (Loss):
Net realized gain ...................................................... 1,370,765
Net change in unrealized appreciation .................................. (9,758,324)
------------
Net Loss ............................................................. (8,387,559)
------------
Dividends to preferred shareholders from net investment income ......... (1,834,630)
------------
Net Increase ........................................................... $ 3,334,585
============
See Notes to Financial Statements
16
Morgan Stanley Insured Municipal Income Trust
Financial Statements continued
Statement of Changes in Net Assets
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 2002 OCTOBER 31, 2001
-------------- ----------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment income ...................................................... $ 13,556,774 $ 27,481,798
Net realized gain .......................................................... 1,370,765 2,882,363
Net change in unrealized appreciation ...................................... (9,758,324) 21,371,132
Dividends to preferred shareholders from net investment income ............. (1,834,630) (5,748,045)
------------ ------------
Net Increase ............................................................. 3,334,585 45,987,248
Dividends to common shareholders from net investment income ................ (10,568,404) (20,862,320)
Decrease from transactions in common shares of beneficial interest ......... (6,272,903) (12,411,356)
------------ ------------
Net Increase (Decrease) .................................................. (13,506,722) 12,713,572
Net Assets Applicable to Common Shareholders:
Beginning of period ........................................................ 405,226,328 392,512,756
------------ ------------
End of Period
(Including accumulated undistributed net investment income of $3,522,970 and
$2,258,468, respectively)................................................... $391,719,606 $405,226,328
============ ============
See Notes to Financial Statements
17
Morgan Stanley Insured Municipal Income Trust
Notes to Financial Statements o April 30, 2002 (unaudited)
1. Organization and Accounting Policies
Morgan Stanley Insured Municipal Income 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 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 income and net realized capital
gains are determined in accordance with federal income tax regulations
18
Morgan Stanley Insured Municipal Income Trust
Notes to Financial Statements o April 30, 2002 (unaudited) continued
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 financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they 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") 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 total 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 six months ended April 30, 2002
aggregated $18,603,338 and $40,048,197, respectively.
Morgan Stanley Trust, an affiliate of the Investment Manager, is the Trust's
transfer agent. At April 30, 2002, the Trust had transfer agent fees and
expenses payable of approximately $5,100.
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 six months ended April 30, 2002
included in Trustees' fees and expenses in the Statement of Operations amounted
to $3,609. At April 30, 2002, the Trust had an accrued pension liability of
$46,371 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.
19
Morgan Stanley Insured Municipal Income Trust
Notes to Financial Statements o April 30, 2002 (unaudited) 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 1.65% 05/06/02 1.13% - 2.05%
2 900 45,000 2.47 09/09/02 2.47
3 1,000 50,000 2.95 07/08/02 2.95
4 400 20,000 2.47 01/05/04 2.47 - 2.79
5 400 20,000 1.60 05/06/02 0.90 - 2.05
------------
* As of April 30, 2002.
** For the six months ended April 30, 2002.
Subsequent to April 30, 2002 and up through June 7, 2002, the Trust paid
dividends to each of the Series 1 through 5 at rates ranging from 1.35% to
2.95% in the aggregate amount of $587,670.
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, 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
Treasury shares purchased and retired (weighted average discount 8.16%)* (452,100) (4,521) (6,268,382)
---------- -------- ------------
Balance, April 30, 2002 ................................................. 25,831,913 $258,319 $373,117,234
========== ======== ============
------------
* The Trustees have voted to retire the shares purchased.
20
Morgan Stanley Insured Municipal Income Trust
Notes to Financial Statements o April 30, 2002 (unaudited) continued
6. Federal Income Tax Status
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 March 26, 2002, the Trust declared the following dividends from net
investment income:
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- ------------ -------------
$0.0675 May 3, 2002 May 17, 2002
$0.0675 June 7, 2002 June 21, 2002
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 rates 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 April 30, 2002, the Trust held positions in residual interest bonds having a
total value of $29,883,305, which represents 7.6% of the Trust's net assets
applicable to common shareholders.
10. Change in Accounting Policy
Effective November 1, 2001, the Trust has adopted 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 had no impact on the net assets of the Trust, but resulted in
a $110,762 increase in the cost of securities and a corresponding increase to
undistributed net investment income based on securities held as of October 31,
2001.
The effect of this change for the six months ended April 30, 2002 was to
increase net investment income by $8,825; decrease unrealized appreciation by
$6,519 and decrease net realized gains by $2,306. The statement of changes in
net assets and the financial highlights for prior periods have not been
restated to reflect this change.
21
Morgan Stanley Insured Municipal Income Trust
Notes to Financial Statements o April 30, 2002 (unaudited) continued
11. Change in Financial Statement Classification for Preferred Shares
In accordance with the provisions of EITF D-98, "Classification and Measurement
of Redeemable Securities", effective for the current reporting period, the
Trust has reclassified its Preferred Shares out of the composition of net
assets section on the Statement of Assets and Liabilities. In addition,
dividends to preferred shareholders are now classified as a component of
operations on the Statement of Operations, the Statement of Changes in Net
Assets and the Financial Highlights. Additionally, the categories of
investments on the Portfolio of Investments are shown as a percentage of net
assets applicable to common shareholders. Prior year amounts have been
reclassified to conform to this period's presentation. This change has no
impact on the net assets applicable to common shareholders of the Trust.
22
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 SIX FOR THE YEAR ENDED OCTOBER 31
MONTHS ENDED -----------------------------------------------------------------
APRIL 30, 2002 2001 2000 1999 1998 1997
---------------- ---------- ------------ ----------- ----------- -------------
(unaudited)
Selected Per Share Data:
Net asset value, beginning of period. ......... $15.42 $14.44 $ 13.69 $15.47 $ 14.69 $13.86
------ ------ ------- ------ ------- ------
Income (loss) from investment operations:
Net investment income* ....................... 0.52 1.03 1.01 1.01 1.00 1.00
Net realized and unrealized gain (loss) ...... (0.32) 0.90 0.79 (1.77) 0.71 0.70
Common share equivalent of dividends
paid to preferred shareholders* ............. (0.07) (0.22) (0.22) (0.19) (0.20) (0.19)
------ ------ ------- ------ ------- ------
Total income (loss) from investment
operations ................................... 0.13 1.71 1.58 (0.95) 1.51 1.51
------ ------ ------- ------ ------- ------
Less dividends from net investment income ..... (0.41) (0.78) (0.86) (0.84) (0.78) (0.78)
------ ------ ------- ------ ------- ------
Anti-dilutive effect of acquiring treasury
shares* ...................................... 0.02 0.05 0.03 0.01 0.05 0.10
------ ------ ------- ------ ------- ------
Net asset value, end of period ................ $15.16 $15.42 $ 14.44 $13.69 $ 15.47 $14.69
====== ====== ======= ====== ======= ======
Market value, end of period ................... $13.93 $14.13 $12.813 $13.25 $14.813 $13.25
====== ====== ======= ====== ======= ======
Total Return+ ................................. 1.49%(1) 16.70% 3.29% (5.17)% 18.27% 21.21%
Ratios to Average Net Assets of Common
Shareholders:
Total expenses (before expense offset) ........ 0.71%(2) 0.71% 0.73% 0.70% 0.69% 0.68%(3)
Net investment income before preferred
stock dividends .............................. 6.91%(2) 6.84% 7.27% 6.71% 6.60% 7.04%
Preferred stock dividends ..................... 0.94%(2) 1.43% 1.59% 1.26% 1.30% 1.31%
Net investment income available to common
shareholders ................................. 5.97%(2) 5.41% 5.68% 5.45% 5.30% 5.73%
Supplemental Data:
Net assets applicable to common
shareholders, end of period, in thousands .... $391,720 $405,226 $392,513 $384,277 $439,807 $434,728
Asset coverage on preferred shares at end
of period .................................... 352% 361% 352% 347% 383% 380%
Portfolio turnover rate ....................... 3%(1) 13% 11% 5% 7% 2%
------------
* 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 are assumed to be reinvested at the prices
obtained under the Trust's dividend reinvestment plan. Total return does
not reflect brokerage commissions.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
See Notes to Financial Statements
23
Morgan Stanley Logo
TRUSTEES
Michael Bozic
Charles A. Fiumefreddo [GRAPHIC OMITTED]
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
Morgan Stanley
Barry Fink Insured Municipal
Vice President, Secretary and General Counsel Income Trust
James F. Willison
Vice President
Joseph R. Arcieri
Vice President
Robert W. Wimmel
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
The financial statements included herein have been taken
from the records of the Trust without examination by the
independent auditors and accordingly they do not express an
opinion thereon. Semiannual Report
37958 April 30, 2002
--------------------