UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-06434
Morgan Stanley Insured Municipal Trust
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
(Address of principal executive offices) (Zip code)
Ronald E. Robison
1221 Avenue of the Americas, New York, New York 10020
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: October 31, 2006
Date of reporting period: April 30, 2006
Item 1 - Report to Shareholders
Welcome, Shareholder:
In this report, you'll learn about how your investment in Morgan Stanley Insured
Municipal Trust performed during the semiannual period. We will provide an
overview of the market conditions, and discuss some of the factors that affected
performance during the reporting period. In addition, this report includes the
Trust's financial statements and a list of Trust investments.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS. THERE
IS NO ASSURANCE THAT THE TRUST WILL ACHIEVE ITS INVESTMENT OBJECTIVE. THE TRUST
IS SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY THAT MARKET VALUES OF
SECURITIES OWNED BY THE TRUST WILL DECLINE AND, THEREFORE, THE VALUE OF THE
TRUST'S SHARES MAY BE LESS THAN WHAT YOU PAID FOR THEM. ACCORDINGLY, YOU CAN
LOSE MONEY INVESTING IN THIS TRUST.
FUND REPORT
For the six months ended April 30, 2006
MARKET CONDITIONS
The U.S. economy navigated a number of challenges and continued to grow during
the reporting period, with particular strong expansion in 2006. Although the
Gulf Coast hurricanes resulted in unprecedented devastation, the negative impact
on the economy was less far-reaching than many had originally anticipated. Even
sharply higher energy prices failed to interrupt the positive economic momentum.
In 2006, developing weakness in the real estate sector and elevated commodity
prices weighed on sentiment. Yet, strong manufacturing surveys, buoyant consumer
confidence and positive employment data pointed toward steady growth in real
gross domestic product. While sustained higher energy costs began to push some
prices upward, headline measures of inflation remained largely stable.
Given the economy's solid growth, the Federal Open Market Committee (the "Fed")
continued to raise the federal funds target rate. Through four increases of 25
basis points each, the Fed brought the rate from 3.75 percent to 4.75 percent as
of the end of the period. Yields on short-term municipal bonds followed the
target rate and rose steadily. In contrast, the yields of long-term bonds
initially declined before moving higher in April. Representative yields on 30-
year AAA rated municipal bonds declined from 4.60 percent in October 2005 to a
low of 4.30 percent in February, before ending the period at 4.55 percent.
Accordingly, the slope of the municipal yield curve continued to flatten as the
difference between short-term and long-term interest rates narrowed. In this
environment, the benefits of leveraged investment strategies were less
pronounced. (Leverage involves borrowing at short-term rates to purchase
longer-term securities, thereby taking advantage of the differential between
short- and long-term yields.)
Demand for municipal bonds strengthened among individual and institutional
investors alike. Meanwhile, municipal bond supply dropped significantly as the
period progressed. New issue volume continued to be robust in the final months
of 2005, supporting the record pace of issuance during the calendar year (more
than $400 billion). However, volume in the first four months of 2006 fell by
nearly 25 percent compared to the same period in 2005. The decline was largely
attributable to a slowdown in refundings, which dropped by more than 55 percent
as rising interest rates discouraged municipalities from refinancing debt.
Improved fiscal conditions among state and local governments also contributed to
less significant borrowing needs. Bonds backed by insurance fell to under 50
percent of issuance in 2006, from nearly 60 percent in 2005. Issuers in
California, Texas, New York, Florida and Illinois accounted for over 40 percent
of the total underwriting volume in 2006.
Reflecting declining supply and sustained demand, municipal bonds outperformed
U.S. Treasuries with comparable maturities. That said, the relative
attractiveness of tax-exempt bonds ebbed somewhat, and the 30-year
municipal-to-Treasury yield ratio steadily declined from 97 to 88 percent. (The
municipal-to-Treasury yield ratio measures the relative attractiveness of the
two sectors. The higher the
2
ratio, the greater the attractiveness of municipal yields relative to Treasury
yields.)
PERFORMANCE ANALYSIS
For the six-month period ended April 30, 2006, the net asset value (NAV) Morgan
Stanley Insured Municipal Trust (IMT) decreased from $15.23 to $15.02 per share.
Based on this change plus reinvestment of tax-free dividends totaling $0.405 per
share and a long-term capital gain distribution of $0.12551 per share, the
Trust's total NAV return was 2.34 percent. IMT's value on the New York Stock
Exchange (NYSE) moved from $13.60 to $14.29 per share during the same period.
Based on this change plus reinvestment of dividends and distributions, the
Trust's total market return was 9.11 percent. IMT's NYSE market price was at a
4.86 percent discount to its NAV. During the fiscal period, the Trust purchased
and retired 480,500 shares of common stock at a weighted average market discount
of 7.73 percent. Past performance is no guarantee of future results.
Monthly dividends for the second quarter of 2006, declared in March, were
unchanged at $0.0675 per share. The dividend reflects the current level of the
Trust's net investment income. IMT's level of undistributed net investment
income was $0.094 per share on April 30, 2006, versus $0.115 per share six
months earlier.(1)
In anticipation of continued Fed tightening and generally higher interest rates,
the Trust made modest ongoing adjustments to its portfolio to reduce volatility.
For example, a U.S. Treasury futures strategy was used to reduce the portfolio's
duration,* as a hedge against rising rates. At the end of April, the Trust's
option-adjusted duration was 10.8 years. This duration positioning tempered the
Trust's total returns when rates declined, but helped total returns when rates
rose.
All the long-term holdings in the Trust as of the end of the period were
guaranteed by AAA rated insurance providers. Purchases during the period
included bonds with maturities in the 25- to 30-year range and defensive
characteristics. Investments continued to emphasize essential service sectors
such as education, transportation, and water and sewer. The Trust also favored
bonds with strong in-state investor demand. Reflecting a commitment to
diversification, the Trust's net assets of approximately $401 million, including
preferred shares, were invested among 13 long-term sectors and 78 credits.
As discussed in previous reports, the total income available for distribution to
holders of common shares includes incremental income provided by the Trust's
outstanding Auction Rate Preferred Shares (ARPS). ARPS dividends reflect
prevailing short-term interest rates on maturities ranging from one week to two
years. Incremental income to holders of common shares depends on two factors:
the amount of ARPS outstanding and the spread between the portfolio's cost yield
and its ARPS auction rate and expenses. The greater the spread and the higher
the amount of ARPS outstanding, the greater the amount of incremental income
available for distribution to holders of common shares. The level of net
investment income available for distribution to holders of common shares varies
with the level of short-term interest
3
rates. ARPS leverage also increases the price volatility of common shares and
has the effect of extending portfolio duration.
During this six-month period, ARPS leverage contributed approximately $0.05 per
share to common-share earnings. The Trust has two ARPS series totaling $130
million, representing 32 percent of net assets, including preferred shares as of
the end of the Period. At the end of April weekly ARPS yields averaged 3.68 to
2.65 percent at the end of October 2005.
The Trust's procedure for reinvesting all dividends and distributions in common
shares is through purchases in the open market. This method helps support the
market value of the Trust's shares. In addition, we would like to remind you
that the Trustees have approved a procedure whereby the Trust may, when
appropriate, purchase shares in the open market or in privately negotiated
transactions at a price not above market value or net asset value, whichever is
lower at the time of purchase. The Trust may also utilize procedures to reduce
or eliminate the amount of ARPS outstanding, including their purchase in the
open market or in privately negotiated transactions.
----------------------------------------------------
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. INVESTMENT RETURN, NET ASSET VALUE AND COMMON SHARE MARKET PRICE WILL
FLUCTUATE AND TRUST SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
There is no guarantee that any sectors mentioned will continue to perform as
discussed herein or that securities in such sectors will be held by the Trust in
the future.
(1) Income earned by certain securities in the portfolio may be subject to the
federal alternative minimum tax (AMT).
* A measure of the sensitivity of a bond's price to changes in interest rates,
expressed in years. Each year of duration represents an expected 1 percent
change in the price of a bond for every 1 percent change in interest rates. The
longer a bond's duration, the greater the effect of interest-rate movements on
its price. Typically, trusts with shorter durations perform better in
rising-interest-rate environments, while trusts with longer durations perform
better when rates decline. Duration calculations are adjusted for leverage.
4
TOP FIVE SECTORS
Water & Sewer 37.3%
Transportation 30.6
General Obligation 23.6
Electric 14.1
Recreational Facs 8.8
CREDIT ENHANCEMENTS
AMBAC 26.6%
FGIC 21.2
FSA 23.2
MBIA 25.6
XLCA 2.4
AGC 1.0
Data as of April 30, 2006. Subject to change daily. All percentages for top five
sectors are as a percentage of net assets applicable to common shareholders. All
percentages for credit enhancements are as a percentage of total long-term
investments. These data are provided for informational purposes only and should
not be deemed a recommendation to buy or sell the securities mentioned. Morgan
Stanley is a full-service securities firm engaged in securities trading and
brokerage activities, investment banking, research and analysis, financing and
financial advisory services.
FOR MORE INFORMATION
ABOUT PORTFOLIO HOLDINGS
EACH MORGAN STANLEY TRUST PROVIDES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS IN
ITS SEMIANNUAL AND ANNUAL REPORTS WITHIN 60 DAYS OF THE END OF THE TRUST'S
SECOND AND FOURTH FISCAL QUARTERS. THE SEMIANNUAL REPORTS AND THE ANNUAL REPORTS
ARE FILED ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) ON
FORM N-CSRS AND FORM N-CSR, RESPECTIVELY. MORGAN STANLEY ALSO DELIVERS THE
SEMIANNUAL AND ANNUAL REPORTS TO TRUST SHAREHOLDERS AND MAKES THESE REPORTS
AVAILABLE ON ITS PUBLIC WEB SITE, WWW.MORGANSTANLEY.COM. EACH MORGAN STANLEY
TRUST ALSO FILES A COMPLETE SCHEDULE OF PORTFOLIO HOLDINGS WITH THE SEC FOR THE
TRUST'S FIRST AND THIRD FISCAL QUARTERS ON FORM N-Q. MORGAN STANLEY DOES NOT
DELIVER THE REPORTS FOR THE FIRST AND THIRD FISCAL QUARTERS TO SHAREHOLDERS, NOR
ARE THE REPORTS POSTED TO THE MORGAN STANLEY PUBLIC WEB SITE. YOU MAY, HOWEVER,
OBTAIN THE FORM N-Q FILINGS (AS WELL AS THE FORM N-CSR AND N-CSRS FILINGS) BY
ACCESSING THE SEC'S WEB SITE, HTTP://WWW.SEC.GOV. YOU MAY ALSO REVIEW AND COPY
THEM AT THE SEC'S PUBLIC REFERENCE ROOM IN WASHINGTON, DC. INFORMATION ON THE
OPERATION OF THE SEC'S PUBLIC REFERENCE ROOM MAY BE OBTAINED BY CALLING THE SEC
AT (800) SEC-0330. YOU CAN ALSO REQUEST COPIES OF THESE MATERIALS, UPON PAYMENT
OF A DUPLICATING FEE, BY ELECTRONIC REQUEST AT THE SEC'S E-MAIL ADDRESS
(PUBLICINFO@SEC.GOV) OR BY WRITING THE PUBLIC REFERENCE SECTION OF THE SEC,
WASHINGTON, DC 20549-0102.
5
DISTRIBUTION BY MATURITY
(% of Long-Term Portfolio) As of April 30, 2006
WEIGHTED AVERAGE MATURITY: 19 YEARS(A)
0-5 7
6-10 11
11-15 22
16-20 17
21-25 20
26-30 19
31+ 4
(a) Where applicable maturities reflect mandatory tenders, puts and call dates.
Portfolio structure is subject to change.
Geographic Summary of Investments
Based on Market Value as a Percent of Total Investments
Alaska.................... 2.1%
Arizona................... 0.8
California................ 9.2
Colorado.................. 3.5
Florida................... 5.6
Georgia................... 3.1
Hawaii.................... 3.9
Illinois.................. 10.8
Indiana................... 3.2
Iowa...................... 1.7
Kentucky.................. 3.6
Louisiana................. 0.5
Maryland.................. 0.7
Massachusetts............. 0.8
Michigan.................. 1.3
Minnesota................. 3.1
Nevada.................... 3.0
New Jersey................ 2.7
New Mexico................ 0.4
New York.................. 7.2
North Carolina............ 1.2
Ohio...................... 2.6
Oregon.................... 0.4
Pennsylvania.............. 2.9
South Carolina............ 4.5
Texas..................... 13.7
Utah...................... 0.8
Virginia.................. 1.8
Washington................ 4.9
Joint exemptions*......... 0.0
-----
Total+.................... 100.0%
=====
------------------
* Joint exemptions have been included in each geographic location.
+ Does not include open short futures contracts with an underlying face amount
of $49,580,860 with unrealized appreciation of $493,226.
6
CALL AND COST (BOOK) YIELD STRUCTURE
(Based on Long-Term Portfolio) As of April 30, 2006
YEARS BONDS CALLABLE(C) -- WEIGHTED AVERAGE CALL PROTECTION: 7 YEARS
2006(a) 1
2007 2
2008 1
2009 6
2010 14
2011 18
2012 14
2013 7
2014 11
2015 11
2016+ 15
COST (BOOK) YIELD(B) -- WEIGHTED AVERAGE BOOK YIELD: 5.2%
2006(a) 6.60
2007 6.10
2008 4.50
2009 5.80
2010 5.50
2011 5.40
2012 4.90
2013 4.90
2014 5.00
2015 4.60
2016+ 5.00
(a) May include issues callable in previous years.
(b) Cost or "book" yield is the annual income earned on a portfolio investment
based on its original purchase price before the Trust's operating expenses.
For example, the Trust is earning a book yield of 6.6% on 1% of the
long-term portfolio that is callable in 2006 . Portfolio structure is
subject to change.
(c) Total may not equal 100% due to rounding.
Portfolio structure is subject to change.
7
INVESTMENT ADVISORY AGREEMENT APPROVAL
NATURE, EXTENT AND QUALITY OF SERVICES
The Board reviewed and considered the nature and extent of the investment
advisory services provided by the Investment Adviser under the Advisory
Agreement, including portfolio management, investment research and fixed income
securities trading. The Board also reviewed and considered the nature and extent
of the non-advisory, administrative services provided by the Trust's
Administrator under the Administration Agreement, including accounting,
clerical, bookkeeping, compliance, business management and planning, and the
provision of supplies, office space and utilities at the Investment Adviser's
expense. (The Investment Adviser and the Administrator together are referred to
as the "Adviser" and the Advisory and Administration Agreements together are
referred to as the "Management Agreement.") The Board also compared the nature
of the services provided by the Adviser with similar services provided by
non-affiliated advisers as reported to the Board by Lipper Inc. ("Lipper").
The Board reviewed and considered the qualifications of the portfolio managers,
the senior administrative managers and other key personnel of the Adviser who
provide the administrative and advisory services to the Trust. The Board
determined that the Adviser's portfolio managers and key personnel are well
qualified by education and/or training and experience to perform the services in
an efficient and professional manner. The Board concluded that the nature and
extent of the advisory and administrative services provided were necessary and
appropriate for the conduct of the business and investment activities of the
Trust. The Board also concluded that the overall quality of the advisory and
administrative services was satisfactory.
PERFORMANCE RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
On a regular basis, the Board reviews the performance of all funds in the Morgan
Stanley Fund Complex, including the Trust, compared to their peers, paying
specific attention to the underperforming funds. In addition, the Board
specifically reviewed the Trust's performance for the one-, three- and five-year
periods ended November 30, 2005, as shown in a report provided by Lipper (the
"Lipper Report"), compared to the performance of comparable funds selected by
Lipper (the "performance peer group"). The Board also discussed with the Adviser
the performance goals and the actual results achieved in managing the Trust. The
Board concluded that the Trust's performance was competitive with that of its
performance peer group.
FEES RELATIVE TO OTHER PROPRIETARY FUNDS MANAGED BY THE ADVISER WITH COMPARABLE
INVESTMENT STRATEGIES
The Board reviewed the advisory and administrative fee (together, the
"management fee") rate paid by the Trust under the Management Agreement. The
Board noted that the management fee rate was comparable to
8
the management fee rates charged by the Adviser to other proprietary funds it
manages with investment strategies comparable to those of the Trust.
FEES AND EXPENSES RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
The Board reviewed the management fee rate and total expense ratio of the Trust
as compared to the average management fee rate and average total expense ratio
for funds, selected by Lipper (the "expense peer group"), managed by other
advisers with investment strategies comparable to those of the Trust, as shown
in the Lipper Report. The Board concluded that the Trust's management fee rate
and total expense ratio were competitive with those of its expense peer group.
BREAKPOINTS AND ECONOMIES OF SCALE
The Board reviewed the structure of the Trust's management fee schedule under
the Management Agreement and noted that it does not include any breakpoints. The
Board considered that the Trust is a closed-end fund and, therefore, that the
Trust's assets are not likely to grow with new sales or grow significantly as a
result of capital appreciation. The Board concluded that economies of scale for
the Trust were not a factor that needed to be considered at the present time.
PROFITABILITY OF THE ADVISER AND AFFILIATES
The Board considered information concerning the costs incurred and profits
realized by the Adviser and affiliates during the last year from their
relationship with the Trust and during the last two years from their
relationship with the Morgan Stanley Fund Complex and reviewed with the Adviser
the cost allocation methodology used to determine the profitability of the
Adviser and affiliates. Based on its review of the information it received, the
Board concluded that the profits earned by the Adviser and affiliates were not
excessive in light of the advisory, administrative and other services provided
to the Trust.
FALL-OUT BENEFITS
The Board considered so-called "fall-out benefits" derived by the Adviser and
affiliates from their relationship with the Trust and the Morgan Stanley Fund
Complex, such as commissions on the purchase and sale of Trust shares and
"float" benefits derived from handling of checks for purchases and sales of
Trust shares, through a broker-dealer affiliate of the Adviser. The Board
concluded that the float benefits were relatively small and that the commissions
were competitive with those of other broker-dealers.
9
SOFT DOLLAR BENEFITS
The Board considered whether the Adviser realizes any benefits from commissions
paid to brokers who execute securities transactions for the Trust ("soft
dollars"). The Board noted that the Trust invests only in fixed income
securities, which do not generate soft dollars.
ADVISER FINANCIALLY SOUND AND FINANCIALLY CAPABLE OF MEETING THE TRUST'S NEEDS
The Board considered whether the Adviser is financially sound and has the
resources necessary to perform its obligations under the Management Agreement.
The Board noted that the Adviser's operations remain profitable, although
increased expenses in recent years have reduced the Adviser's profitability. The
Board concluded that the Adviser has the financial resources necessary to
fulfill its obligations under the Management Agreement.
HISTORICAL RELATIONSHIP BETWEEN THE TRUST AND THE ADVISER
The Board also reviewed and considered the historical relationship between the
Trust and the Adviser, including the organizational structure of the Adviser,
the policies and procedures formulated and adopted by the Adviser for managing
the Trust's operations and the Board's confidence in the competence and
integrity of the senior managers and key personnel of the Adviser. The Board
concluded that it is beneficial for the Trust to continue its relationship with
the Adviser.
OTHER FACTORS AND CURRENT TRENDS
The Board considered the controls and procedures adopted and implemented by the
Adviser and monitored by the Trust's Chief Compliance Officer and concluded that
the conduct of business by the Adviser indicates a good faith effort on its part
to adhere to high ethical standards in the conduct of the Trust's business.
GENERAL CONCLUSION
After considering and weighing all of the above factors, the Board concluded
that it would be in the best interest of the Trust and its shareholders to
approve renewal of the Management Agreement for another year.
10
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - APRIL 30, 2006 (UNAUDITED)
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Tax-Exempt Municipal Bonds (143.4%)
General Obligation (23.6%)
$ 10,000 North Slope Borough, Alaska, Ser 2000 B (MBIA)............ 0.00 % 06/30/10 $ 8,490,800
3,000 Los Angeles, California, Ser 2004 A (MBIA)................ 5.00 09/01/24 3,119,070
3,000 Florida Board of Education, Capital Outlay Refg 2002 Ser C
(MBIA).................................................. 5.00 06/01/20 3,118,710
Honolulu City & County, Hawaii,
2,500 ROLS RR II R 237-2 (MBIA)............................... 6.576++ 03/01/25 2,799,350
2,500 ROLS RR II R 237-3 (MBIA)............................... 6.576++ 03/01/26 2,756,575
Chicago, Illinois,
8,000 Refg Ser 1992 (Ambac)................................... 6.25 01/01/11 8,684,080
2,000 Refg 2001 A (MBIA)...................................... 0.00++ 01/01/21 1,700,800
2,000 Refg 2001 A (MBIA)...................................... 0.00++ 01/01/22 1,699,200
Illinois,
10,000 Ser 2001 (MBIA)......................................... 5.375 04/01/15 10,886,100
10,000 Ser 2001 (MBIA)......................................... 5.375 04/01/16 10,856,500
3,000 Brainerd Independent School District #181, Minnesota, Ser
2002 A (FGIC)........................................... 5.375 02/01/18 3,213,660
4,000 Clark County, Nevada, Transportation Impr Ltd Tax Ser
06/01/92 B (Ambac)...................................... 6.50 06/01/17 4,735,040
1,880 King County, Washington, Refg 1998 Ser B (MBIA)........... 5.25 01/01/34 1,933,336
------------
--------
63,993,221
61,880
------------
--------
Educational Facilities Revenue (6.5%)
2,000 Arizona Board of Regents, Arizona State University Ser
2004 COPs (Ambac)....................................... 5.00 09/01/30 2,052,700
University of California,
1,000 Limited Projects Ser 2005 B (FSA)....................... 5.00 05/15/30 1,033,080
2,000 Multi Purpose Ser Q (FSA)............................... 5.00 09/01/31 2,059,920
3,000 Broward County Florida Educational Facilities Authority,
Florida, Nova Southeastern University Ser 2006 (AGC).... 5.00 04/01/36 3,095,850
1,735 Orange County Educational Facilities Authority, Florida,
Rollins College Ser 2005 (Ambac)........................ 5.125 12/01/28 1,805,701
Fulton County Development Authority, Georgia,
900 Morehouse College Ser 2000 (Ambac)...................... 6.25 12/01/21 993,312
1,700 Morehouse College Ser 2000 (Ambac)...................... 5.875 12/01/30 1,852,575
2,500 University of North Carolina, Ser 2000 (Ambac)............ 5.25 10/01/20 2,641,075
2,000 University of North Carolina at Wilmington, Student
Housing Ser 2005 COPs (FGIC)............................ 5.00 06/01/36 2,046,120
------------
--------
17,580,333
16,835
------------
--------
11
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - APRIL 30, 2006 (UNAUDITED) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Electric Revenue (14.1%)
$ 2,000 Arkansas River Power Authority, Colorado Power Ser 2006
(XLCA).................................................. 5.25 % 10/01/40 $ 2,104,080
2,000 Indiana Municipal Power Agency, Power Supply 2004 Ser A
(FGIC).................................................. 5.00 01/01/32 2,051,520
1,000 Long Island Power Authority, New York, Ser 2006 A
(XLCA).................................................. 5.00 12/01/26 1,038,920
South Carolina Public Service Authority,
9,325 Ser 2002 B (FSA)........................................ 5.375 01/01/17 9,928,234
2,000 Ser 2003 A (Ambac)...................................... 5.00 01/01/27 2,060,000
10,000 Lower Colorado River Authority, Texas, Refg Ser 1999 A
(FSA)................................................... 5.875 05/15/16 10,692,600
10,000 Seattle, Washington, Light & Power Refg Rev 2001 (FSA).... 5.125 03/01/26 10,267,700
------------
--------
38,143,054
36,325
------------
--------
Hospital Revenue (4.6%)
3,000 Indiana Health Facilities Financing Authority, Community
Health Ser 2005 A (Ambac)............................... 5.00 05/01/35 3,072,120
2,000 Louisiana Public Facilities Authority, Baton Rouge General
Medical Center-FHA Insured Mtge Ser 2004 (MBIA)......... 5.25 07/01/33 2,086,220
4,000 Minneapolis, Minnesota, Fairview Health 2005 Ser D
(Ambac)................................................. 5.00 11/15/34 4,113,360
2,000 New York State Dormitory Authority, Montefiore
Hospital - FHA Insured Mtge Ser 2004 A (FGIC)........... 5.00 08/01/29 2,060,640
1,000 Medical University Hospital Authority, South Carolina FHA
Insured Mtge Refg Ser 2004 A (MBIA)..................... 5.25 02/15/25 1,054,930
------------
--------
12,387,270
12,000
------------
--------
Industrial Development/Pollution Control Revenue (4.3%)
5,000 Humboldt County, Nevada, Sierra Pacific Power Co Refg Ser
1987 (Ambac)............................................ 6.55 10/01/13 5,143,650
5,000 New York State Energy Research & Development Authority,
Brooklyn Union Gas Co 1996 Ser (MBIA)**................. 5.50 01/01/21 5,106,750
1,500 Delaware County Industrial Development Authority,
Pennsylvania, Aqua Inc Ser A 2005 (AMT) (FGIC).......... 5.00 11/01/37 1,530,375
------------
--------
11,780,775
11,500
------------
--------
Mortgage Revenue - Multi-Family (1.4%)
3,695 New Jersey Housing Mortgage Finance Authority, Home Buyer
-------- Ser 2000 CC (AMT) (MBIA)................................ 5.875 10/01/31 3,724,819
------------
12
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - APRIL 30, 2006 (UNAUDITED) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Public Facilities Revenue (3.5%)
$ 2,000 Kern County Board of Education, California, Refg Ser 2006
A COPs (MBIA) (WI)...................................... 5.00 % 06/01/31 $ 2,059,860
2,000 Massachusetts School Building Authority, 2005 Ser A
(FSA)................................................... 5.00 08/15/30 2,074,400
1,500 Albuquerque, New Mexico, Gross Receipts Lodgers' Tax Refg
Ser 2004 A (FSA)........................................ 5.00 07/01/37 1,533,735
1,685 Oregon Department of Administrative Services, COPs Ser
2005 B (FGIC)........................................... 5.00 11/01/24 1,748,929
2,000 Pennsylvania Public School Building Authority,
Philadelphia School District Ser 2003 (FSA)............. 5.00 06/01/33 2,047,260
------------
--------
9,464,184
9,185
------------
--------
Recreational Facilities Revenue (8.8%)
6,500 Denver Convention Center Hotel Authority, Colorado, Refg
Ser 2006 (XLCA) (WI).................................... 5.00 12/01/35 6,679,205
Iowa,
3,600 Vision Iowa Ser 2001 (MBIA)............................. 5.50 02/15/19 4,015,908
2,500 Vision Iowa Ser 2001 (MBIA)............................. 5.50 02/15/20 2,799,900
10,000 Hamilton County, Ohio, Sales Tax Ser 2000 (Ambac)......... 5.25 12/01/32 10,472,200
------------
--------
23,967,213
22,600
------------
--------
Tax Allocation Revenue (0.9%)
2,390 San Jose Redevelopment Agency, California, Merged Area Ser
-------- 2002 (MBIA)............................................. 5.00 08/01/32 2,440,644
------------
Transportation Facilities Revenue (30.6%)
5,000 Denver City & County, Colorado, Airport Refg Ser 2000 A
(AMT) (Ambac)........................................... 6.00 11/15/18 5,361,650
Miami Dade County, Florida,
2,155 Miami Int'l Airport Refg Ser 2003 B (AMT) (MBIA)........ 5.25 10/01/18 2,260,832
2,270 Miami Int'l Airport Refg Ser 2003 B (AMT) (MBIA)........ 5.25 10/01/19 2,377,099
5,000 Atlanta, Georgia, Airport Ser 2004 C (FSA)................ 5.00 01/01/33 5,119,250
5,000 Hawaii, Airports Refg Ser 2001 (AMT) (FGIC)............... 5.25 07/01/21 5,158,300
Chicago, Illinois,
3,000 O'Hare Int'l Airport, Ser 2005 A (MBIA)................. 5.25 01/01/25 3,190,470
2,000 O'Hare Int'l Airport Third Lien Ser 2003 (AMT) (FSA) 5.75.. 01/01/23 2,177,520
4,000 Regional Transportation Authority, Illinois, Refg Ser 1999
(FSA)................................................... 5.75 06/01/21 4,597,920
2,500 Maryland Economic Development Corporation, Maryland
Aviation Administration Ser 2003 (AMT) (FSA)............ 5.375 06/01/22 2,642,800
1,000 Massachusetts Turnpike Authority, Metropolitan Highway
ROLS RRII R536 (MBIA)................................... 8.116++ 01/01/37 1,053,440
5,000 Minneapolis - St Paul Metropolitan Airports Commission,
Minnesota, Ser 2001 C (FGIC)............................ 5.25 01/01/32 5,183,500
5,000 Nevada Department of Business & Industry, Las Vegas
Monorail 1st Tier Ser 2000 (Ambac)...................... 0.00 01/01/21 2,450,200
13
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - APRIL 30, 2006 (UNAUDITED) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
$ 2,000 New Jersey Transportation Trust Fund Authority, 2005 Ser C
(FGIC).................................................. 5.25 % 06/15/20 $ 2,133,560
5,000 New Jersey Turnpike Authority, Ser 2003 A (Ambac)......... 5.00 01/01/30 5,150,000
Metropolitan Transportation Authority, New York,
6,805 State Service Contract Refg Ser 2002 B (MBIA)........... 5.50 07/01/20 7,352,394
10,000 Transportation Refg Ser 2002 A (Ambac).................. 5.50 11/15/17 10,838,300
2,000 Transportation Refg Ser 2002 A (FGIC)................... 5.00 11/15/25 2,065,500
Pennsylvania Turnpike Commission,
4,000 Ser R 2001 (Ambac)...................................... 5.00 12/01/26 4,135,960
4,000 Ser A 2004 (Ambac)...................................... 5.00 12/01/34 4,122,360
3,000 Harris County, Texas, Toll Road Sr Lien Ser 2005 A
(FSA)................................................... 5.25 08/15/35 3,121,530
2,500 Port of Seattle, Washington, Ser 2001 B (AMT) (MBIA)...... 5.625 02/01/24 2,632,325
------------
--------
83,124,910
81,230
------------
--------
Water & Sewer Revenue (37.3%)
1,000 Phoenix Civic Improvement Corporation, Arizona, Jr Lien
Wastewater Ser 2004 (MBIA).............................. 5.00 07/01/27 1,034,170
4,000 Eastern Municipal Water District, California, Water Ser
2006 A COPs (MBIA)...................................... 5.00 07/01/32 4,118,760
5,000 Los Angeles Department Water & Power, California, 2006 Ser
A-1 (Ambac)............................................. 5.00 07/01/40 5,146,400
5,000 San Diego County Water Authority, California, Ser 2004 A
COPs (FSA).............................................. 5.00 05/01/29 5,148,000
10,000 Tampa Bay Water, Florida, Ser 2001 B (FGIC)............... 5.00 10/01/31 10,197,000
2,000 Atlanta, Georgia, Water & Wastewater Ser 1999 A (FGIC).... 5.00 11/01/29 2,025,160
5,000 Honolulu City & County, Hawaii, Wastewater Ser 2001
(Ambac)................................................. 5.125 07/01/31 5,130,900
10,000 Louisville & Jefferson County Metropolitan Sewer District,
Kentucky, Ser 1999 A (FGIC)............................. 5.75 05/15/33 10,694,300
3,800 Louisville Board of Water Works, Kentucky, Water Ser 2000
(FSA)................................................... 5.50 11/15/25 4,031,534
5,000 Detroit, Michigan, Sewage Disposal Ser 2001 A (FGIC)...... 5.125 07/01/31 5,158,600
5,000 Grand Strand Water & Sewer Authority, South Carolina, Refg
Ser 2001 (FSA).......................................... 5.00 06/01/31 5,109,000
Austin, Texas,
10,000 Water & Wastewater Refg Ser 2001 A (FSA)................ 5.125 05/15/27 10,251,500
2,000 Water & Wastewater Ser 2004 A (Ambac)................... 5.00 11/15/27 2,059,520
15,000 Houston, Texas, Combined Utility First Lien Refg 2004 Ser
A (FGIC)................................................ 5.25 05/15/23 15,840,300
San Antonio, Texas,
2,000 Water & Refg Ser 2002 (FSA)............................. 5.50 05/15/18 2,149,020
2,500 Water & Refg Ser 2002 (FSA)............................. 5.50 05/15/20 2,680,750
Wichita Falls, Texas,
2,000 Water & Sewer Ser 2001 (Ambac).......................... 5.375 08/01/20 2,119,880
3,000 Water & Sewer Ser 2001 (Ambac).......................... 5.375 08/01/24 3,174,270
5,000 King County, Washington, Sewer Refg 2001 (FGIC)........... 5.00 01/01/31 5,097,350
------------
--------
101,166,414
97,300
------------
--------
14
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - APRIL 30, 2006 (UNAUDITED) continued
PRINCIPAL
AMOUNT IN COUPON MATURITY
THOUSANDS RATE DATE VALUE
---------------------------------------------------------------------------------------------------------
Other Revenue (3.2%)
$ 2,500 California, Economic Recovery Ser 2004 A (MBIA)........... 5.00 % 07/01/15 $ 2,658,375
6,000 Golden State Tobacco Securitization Corporation,
California, Enhanced Asset Backed Ser 2005 A (FGIC)..... 5.00 06/01/38 6,124,980
------------
--------
8,783,355
8,500
------------
--------
Refunded (4.6%)
3,000 San Diego Unified School District, California, Ser 2003 E
(FSA)................................................... 5.25 07/01/13# 3,251,370
2,500 College Park Business & Industrial Development Authority,
Georgia, Civic Center Ser 2000 (Ambac).................. 5.75 09/01/10+ 2,741,550
3,000 Utah Board of Regents, University of Utah - Huntsman
Cancer Institute Refg Ser 2000 A (MBIA)................. 5.50 04/01/10+ 3,217,500
3,000 Alexandria Industrial Development Authority, Virginia,
Institute for Defense Analysis Ser 2000 A (Ambac)....... 5.90 10/01/10+ 3,289,830
------------
--------
12,500,250
11,500
------------
--------
374,940 Total Tax-Exempt Municipal Bonds (Cost $372,198,819)......................... 389,056,442
------------
--------
Short-Term Tax-Exempt Municipal Obligations (5.8%)
7,800 Indiana Health Facility Financing Authority, Clarian
Health Ser 2000 B (Demand 05/01/06)..................... 3.83 03/01/30 7,800,000
900 New York City Municipal Water Finance Authority, New York,
2000 Ser C (Demand 05/01/06)............................ 3.78 06/12/33 900,000
1,800 Harris County Health Facilities Development Corporation,
Texas, Methodist Hospital Ser 2005 B (Demand
05/01/06)............................................... 3.81 02/15/31* 1,800,000
1,400 San Antonio Educational Facilities Corporation, Texas,
Trinity University Ser 2002 (Demand 05/01/06)........... 3.81 06/01/33 1,400,000
3,800 Roanoke Industrial Development Authority, Virginia,
Carilion Health Ser 1997 A (Demand 05/01/06)............ 3.80 07/01/27 3,800,000
------------
--------
15,700 Total Short-Term Tax-Exempt Municipal Obligations (Cost $15,700,000)......... 15,700,000
------------
--------
$390,640 Total Investments (Cost $387,898,819) (a) (b)...................... 149.2% 404,756,442
========
Liabilities in Excess of Other Assets.............................. (1.3) (3,467,056)
Preferred Shares of Beneficial Interest............................ (47.9) (130,000,000)
----- ------------
Net Assets Applicable to Common Shareholders....................... 100.0% $271,289,386
===== ============
15
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
PORTFOLIO OF INVESTMENTS - APRIL 30, 2006 (UNAUDITED) continued
---------------------
Note: The categories of investments are shown as a percentage of
net assets applicable to common shareholders.
AMT Alternative Minimum Tax.
COPs Certificates of Participation.
FHA Federal Housing Authority.
ROLS Reset Option Longs. (Illiquid securities).
WI Security purchased on a when-issued basis.
# Crossover refunded to call date shown.
+ Prerefunded to call date shown.
++ Security is a "step-up" bond where the coupon increases on a
predetermined future date.
++ Current coupon rate for residual interest bond. This rate
resets periodically as the auction rate on the related
security changes. Positions in inverse floating rate
municipal obligation have a value of $6,609,365, which
represents 2.4% of net assets applicable to common
shareholders.
* Current coupon of variable rate demand obligation.
** A portion of this security has been physically segregated in
connection with open futures contracts in the amount of
$205,000.
(a) Securities have been designated as collateral in an amount
equal to $58,572,567 in connection with open futures
contracts and securities purchased on a when-issued basis.
(b) The aggregate cost for federal income tax purposes is
$387,892,487. The aggregate gross unrealized appreciation is
$17,262,056 and the aggregate gross unrealized depreciation
is $398,101, resulting in net unrealized appreciation of
$16,863,955.
Bond Insurance:
---------------
AGC Assured Guaranty Corporation.
Ambac Ambac Assurance Corporation.
FGIC Financial Guaranty Insurance Company.
FSA Financial Security Assurance Inc.
MBIA Municipal Bond Investors Assurance Corporation.
XLCA XL Capital Assurance Inc.
FUTURES CONTRACTS OPEN AT APRIL 30, 2006:
NUMBER OF DESCRIPTION, DELIVERY UNDERLYING FACE UNREALIZED
CONTRACTS LONG/SHORT MONTH AND YEAR AMOUNT AT VALUE APPRECIATION
--------------------------------------------------------------------------------------
400 Short U.S. Treasury Notes 5 year,
June 2006 $(41,662,500) $345,776
75 Short U.S. Treasury Notes 10 year,
June 2006 (7,918,360) 147,450
--------
Total Unrealized Appreciation............................. $493,226
========
16
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2006 (unaudited)
Assets:
Investments in securities, at value
(cost $387,898,819)....................................... $404,756,442
Cash........................................................ 40,194
Receivable for:
Interest................................................ 6,122,578
Investments sold........................................ 2,059,327
Prepaid expenses and other assets........................... 34,300
------------
Total Assets............................................ 413,012,841
------------
Liabilities:
Payable for:
Investments purchased................................... 11,315,116
Investment advisory fee................................. 89,480
Variation margin........................................ 75,391
Common shares of beneficial interest repurchased........ 69,806
Transfer agent fee...................................... 26,549
Administration fee...................................... 26,513
Accrued expenses and other payables......................... 120,600
------------
Total Liabilities....................................... 11,723,455
------------
Preferred shares of beneficial interest (at liquidation
value) (1,000,000 shares authorized of non-participating
$.01 par value, 2,600 shares outstanding)................. 130,000,000
------------
Net Assets Applicable to Common Shareholders............ $271,289,386
============
Composition of Net Assets Applicable to Common Shareholders:
Common shares of beneficial interest (unlimited shares
authorized of $.01 par value, 18,065,938 shares
outstanding).............................................. $250,889,073
Net unrealized appreciation................................. 17,350,849
Accumulated undistributed net investment income............. 1,704,804
Accumulated undistributed net realized gain................. 1,344,660
------------
Net Assets Applicable to Common Shareholders............ $271,289,386
------------
Net Asset Value Per Common Share
($271,289,386 divided by 18,065,938 common shares
outstanding)................................................ $15.02
============
17
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
FINANCIAL STATEMENTS continued
Statement of Operations
For the six months ended April 30, 2006 (unaudited)
Net Investment Income:
Interest Income............................................. $9,968,263
----------
Expenses
Investment advisory fee..................................... 547,500
Auction commission fees..................................... 178,289
Administration fee.......................................... 162,222
Professional fees........................................... 30,746
Shareholder reports and notices............................. 20,726
Transfer agent fees and expenses............................ 15,471
Registration fees........................................... 10,017
Trustees' fees and expenses................................. 6,159
Auction agent fees.......................................... 4,470
Custodian fees.............................................. 800
Other....................................................... 29,216
----------
Total Expenses.......................................... 1,005,616
Less: expense offset........................................ (39)
----------
Net Expenses............................................ 1,005,577
----------
Net Investment Income................................... 8,962,686
----------
Net Realized and Unrealized Gain (Loss):
Net Realized Gain on:
Investments................................................. 847,060
Futures contracts........................................... 1,558,322
----------
Net Realized Gain....................................... 2,405,382
----------
Net Change in Unrealized Appreciation/Depreciation on:
Investments................................................. (3,535,183)
Futures contracts........................................... (567,469)
----------
Net Depreciation........................................ (4,102,652)
----------
Net Gain................................................ (1,697,270)
----------
Dividends to preferred shareholders from net investment
income.................................................... (1,969,796)
----------
Net Increase................................................ $5,295,620
==========
18
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
APRIL 30, 2006 OCTOBER 31, 2005
-------------- ----------------
(unaudited)
Increase (Decrease) in Net Assets:
Operations:
Net investment income....................................... $ 8,962,686 $ 18,266,199
Net realized gain........................................... 2,405,382 3,567,557
Net change in unrealized appreciation/depreciation.......... (4,102,652) (10,204,841)
Dividends to preferred shareholders from net investment
income.................................................... (1,969,796) (2,534,364)
------------ ------------
Net Increase............................................ 5,295,620 9,094,551
------------ ------------
Dividends and Distributions to Common Shareholders from:
Net investment income....................................... (7,418,817) (15,352,983)
Net realized gain........................................... (2,320,371) --
------------ ------------
Total Dividends and Distributions....................... (9,739,188) (15,352,983)
------------ ------------
Decrease from transactions in common shares of beneficial
interest.................................................. (6,737,861) (11,599,623)
------------ ------------
Net Decrease............................................ (11,181,429) (17,858,055)
Net Assets Applicable to Common Shareholders
Beginning of period......................................... 282,470,815 300,328,870
------------ ------------
End of Period
(Including accumulated undistributed net investment income
of $1,704,804 and $2,130,731, respectively)................. $271,289,386 $282,470,815
============ ============
19
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2006 (UNAUDITED)
1. Organization and Accounting Policies
Morgan Stanley Insured Municipal Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as a diversified, closed-end
management investment company. The Trust's investment objective is to provide
current income which is exempt from federal income tax. The Trust was organized
as a Massachusetts business trust on October 3, 1991 and commenced operations on
February 28, 1992.
The following is a summary of significant accounting policies:
A. Valuation of Investments -- (1) portfolio securities are valued by an outside
independent pricing service approved by the Trustees. The pricing service uses
both a computerized grid matrix of tax-exempt securities and evaluations by its
staff, in each case based on information concerning market transactions and
quotations from dealers which reflect the mean between the last reported bid and
asked price. The portfolio securities are thus valued by reference to a
combination of transactions and quotations for the same or other securities
believed to be comparable in quality, coupon, maturity, type of issue, call
provisions, trading characteristics and other features deemed to be relevant.
The Trustees believe that timely and reliable market quotations are generally
not readily available for purposes of valuing tax-exempt securities and that the
valuations supplied by the pricing service are more likely to approximate the
fair value of such securities; (2) futures are valued at the latest sale price
on the commodities exchange on which they trade unless it is determined that
such price does not reflect their market value, in which case they will be
valued at their fair value as determined in good faith under procedures
established by and under the supervision of the Trustees; and (3) short-term
debt securities having a maturity date of more than sixty days at time of
purchase are valued on a mark-to-market basis until sixty days prior to maturity
and thereafter at amortized cost based on their value on the 61st day.
Short-term debt securities having a maturity date of sixty days or less at the
time of purchase are valued at amortized cost.
B. Accounting for Investments -- Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined by the identified cost method.
Discounts are accreted and premiums are amortized over the life of the
respective securities. Interest income is accrued daily.
C. Futures Contracts -- A futures contract is an agreement between two parties
to buy and sell financial instruments or contracts based on financial indices at
a set price on a future date. Upon entering into such a contract, the Trust is
required to pledge to the broker cash, U.S. Government securities or other
liquid portfolio securities equal to the minimum initial margin requirements of
the applicable futures exchange. Pursuant to the contract, the Trust agrees to
receive from or pay to the
20
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2006 (UNAUDITED) continued
broker an amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments known as variation margin are recorded by
the Trust as unrealized gains and losses. Upon closing of the contract, the
Trust realizes a gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
D. Federal Income Tax Policy -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable and nontaxable
income to its shareholders. Accordingly, no federal income tax provision is
required.
E. Dividends and Distributions to Shareholders -- Dividends and distributions to
shareholders are recorded on the ex-dividend date.
F. Use of Estimates -- The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
2. Investment Advisory/Administration Agreements
Pursuant to an Investment Management Agreement with Morgan Stanley Investment
Advisors Inc. (the "Investment Adviser"), the Trust pays an advisory fee,
calculated weekly and payable monthly, by applying the annual rate of 0.27% to
the Trust's weekly total net assets including preferred shares.
Pursuant to an Administration Agreement with Morgan Stanley Services Company
Inc. (the "Administrator"), an affiliate of the Investment Adviser, the Trust
pays an administration fee, calculated weekly and payable monthly, by applying
the annual rate of 0.08% to the Trust's weekly total net assets including
preferred shares.
3. Security Transactions and Transactions With Affiliates
The cost of purchases and proceeds from sales of portfolio securities, excluding
short-term investments, for the six months ended April 30, 2006 aggregated
$32,726,975 and $45,609,045, respectively. Included in the aforementioned
transactions is a sale of $1,040,192 with Morgan Stanley New York Tax-Free
Income Fund, with a net realized gain of $3,276.
Morgan Stanley Trust, an affiliate of the Investment Adviser and Administrator,
is the Trust's transfer agent.
The Trust has an unfunded noncontributory defined benefit pension plan covering
certain independent Trustees of the Trust who will have served as independent
Trustees for at least five years at the time of retirement. Benefits under this
plan are based on factors which include years of service and
21
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2006 (UNAUDITED) continued
compensation. The Trustees voted to close the plan to new participants and
eliminate the future benefits growth due to increases to compensation after July
31, 2003. Aggregate pension costs for the six months ended April 30, 2006
included in Trustees' fees and expenses in the Statement of Operations amounted
to $3,310. At April 30, 2006, the Trust had an accrued pension liability of
$57,692 which is included in accrued expenses in the Statement of Assets and
Liabilities.
The Trust has an unfunded Deferred Compensation Plan (the "Compensation Plan")
which allows each independent Trustee to defer payment of all, or a portion, of
the fees he receives for serving on the Board of Trustees. Each eligible Trustee
generally may elect to have the deferred amounts credited with a return equal to
the total return on one or more of the Morgan Stanley funds that are offered as
investment options under the Compensation Plan. Appreciation/depreciation and
distributions received from these investments are recorded with an offsetting
increase/decrease in the deferred compensation obligation and do not affect the
net asset value of the Trust.
4. Preferred Shares of Beneficial Interest
The Trust is authorized to issue up to 1,000,000 non-participating preferred
shares of beneficial interest having a par value of $.01 per share, in one or
more series, with rights as determined by the Trustees, without approval of the
common shareholders. The Trust has issued Series TU and TH Auction Rate
Preferred Shares ("preferred shares") which have a liquidation value of $50,000
per share plus the redemption premium, if any, plus accumulated but unpaid
dividends, whether or not declared, thereon to the date of distribution. The
Trust may redeem such shares, in whole or in part, at the original purchase
price of $50,000 per share plus accumulated but unpaid dividends, whether or not
declared, thereon to the date of redemption.
Dividends, which are cumulative, are reset through auction procedures.
AMOUNT RESET RANGE OF
SERIES SHARES* IN THOUSANDS* RATE* DATE DIVIDEND RATES**
------ ------- ------------- ----- -------- ----------------
TU 800 $40,000 3.65% 05/03/06 1.54%- 3.65%
TH 1,800 90,000 3.70 05/05/06 2.65- 3.70
---------------------
* As of April 30, 2006.
** For the six months ended April 30, 2006.
Subsequent to April 30, 2006 and up through June 2, 2006 the Trust paid
dividends to Series TU and TH at rates ranging from 3.34% to 3.70% in the
aggregate amount of $438,134.
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
22
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2006 (UNAUDITED) continued
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
PAR EXCESS OF
SHARES VALUE PAR VALUE
---------- --------- ------------
Balance, October 31, 2004................................... 19,386,980 $193,870 $269,032,687
Treasury shares purchased and retired (weighted average
discount 10.73%)*......................................... (840,542) (8,405) (11,591,218)
---------- -------- ------------
Balance, October 31, 2005................................... 18,546,438 185,465 257,441,469
Treasury shares purchased and retired (weighted average
discount 7.73%)*.......................................... (480,500) (4,805) (6,733,056)
---------- -------- ------------
Balance, April 30, 2006..................................... 18,065,938 $180,660 $250,708,413
========== ======== ============
---------------------
* The Trustees have voted to retire the shares purchased.
6. Dividends to Common Shareholders
On March 28, 2006, the Trust declared the following dividends from net
investment income:
AMOUNT RECORD PAYABLE
PER SHARE DATE DATE
--------- -------------------- -------------
$0.0675 May 5, 2006 May 19, 2006
$0.0675 June 9, 2006 June 23, 2006
7. Expense Offset
The expense offset represents a reduction of the custodian and transfer agent
fees and expenses for earnings on cash balances maintained by the Trust.
8. Risks Relating to Certain Financial Instruments
The Trust may invest a portion of its assets in residual interest bonds, which
are inverse floating rate municipal obligations. The prices of these securities
are subject to greater market fluctuations during periods of changing prevailing
interest rates than are comparable fixed rate obligations.
To hedge against adverse interest rate changes, the Trust may invest in
financial futures contracts or municipal bond index futures contracts ("futures
contracts").
23
Morgan Stanley Insured Municipal Trust
NOTES TO FINANCIAL STATEMENTS - APRIL 30, 2006 (UNAUDITED) continued
These futures contracts involve elements of market risk in excess of the amount
reflected in the Statement of Assets and Liabilities. The Trust bears the risk
of an unfavorable change in the value of the underlying securities. Risks may
also arise upon entering into these contracts from the potential inability of
the counterparties to meet the terms of their contracts.
9. Federal Income Tax Status
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for tax purposes are reported as distributions of paid-in-capital.
As of October 30, 2005, the Trust had temporary book/tax differences primarily
attributable to book amortization of discounts on debt securities,
mark-to-market of open futures contracts and dividend payable.
24
Morgan Stanley Insured Municipal Trust
FINANCIAL HIGHLIGHTS
Selected ratios and per share data for a common share of beneficial interest
outstanding throughout each period:
FOR THE SIX FOR THE YEAR ENDED OCTOBER 31,
MONTHS ENDED -------------------------------------------------------------------------
APRIL 30, 2006 2005 2004 2003 2002 2001
-------------- --------- --------- --------- --------- ---------
(unaudited)
Selected Per Share Data:
Net asset value, beginning of
period.............................. $15.23 $15.49 $15.38 $15.50 $15.74 $15.09
------ ------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income*........... 0.49 0.96 0.96 0.97 1.05 1.14
Net realized and unrealized gain
(loss)........................... (0.08) (0.35) 0.16 0.14 0.15 0.79
Common share equivalent of
dividends paid to preferred
shareholders*.................... (0.11) (0.13) (0.11) (0.13) (0.18) (0.22)
------ ------ ------ ------ ------ ------
Total income from investment
operations.......................... 0.30 0.48 1.01 0.98 1.02 1.71
------ ------ ------ ------ ------ ------
Less dividends and distributions
from:
Net investment income............ (0.41) (0.81) (0.87) (0.90) (0.85) (0.93)
Net realized gain................ (0.13) -- (0.08) (0.23) (0.43) (0.13)
------ ------ ------ ------ ------ ------
Total dividends and distributions.... (0.54) (0.81) (0.95) (1.13) (1.28) (1.06)
------ ------ ------ ------ ------ ------
Anti-dilutive effect of acquiring
treasury shares*.................... 0.03 0.07 0.05 0.03 0.02 0.00
------ ------ ------ ------ ------ ------
Net asset value, end of period....... $15.02 $15.23 $15.49 $15.38 $15.50 $15.74
====== ====== ====== ====== ====== ======
Market value, end of period.......... $14.29 $13.60 $13.88 $14.38 $14.15 $15.29
====== ====== ====== ====== ====== ======
Total Return+........................ 9.11%(1) 3.86% 3.21% 9.78% 1.14% 15.48%
Ratios to Average Net Assets of
Common Shareholders:
Total expenses (before expense
offset)............................. 0.73%(2) 0.78% 0.82%(3) 0.80%(3) 0.76%(3) 0.71%(3)
Net investment income before
preferred stock dividends........... 6.49%(2) 6.24% 6.34% 6.26% 6.92% 7.42%
Preferred stock dividends............ 1.43%(2) 0.87% 0.69% 0.87% 1.15% 1.43%
Net investment income available to
common shareholders................. 5.06%(2) 5.37% 5.65% 5.39% 5.77% 5.99%
Supplemental Data:
Net assets applicable to common
shareholders, end of period, in
thousands........................... $271,289 $282,471 $300,329 $309,296 $320,331 $331,834
Asset coverage on preferred shares at
end of period....................... 309% 317% 331% 338% 346% 354%
Portfolio turnover rate.............. 8%(1) 14% 14% 11% 17% 29%
---------------------
* The per share amounts were computed using an average number
of common shares outstanding during the period.
+ Total return is based upon the current market value on the
last day of each period reported. Dividends and
distributions are assumed to be reinvested at the prices
obtained under the Trust's dividend reinvestment plan. Total
return does not reflect brokerage commissions.
(1) Not annualized.
(2) Annualized.
(3) Does not reflect the effect of expense offset of 0.01%.
25
See Notes to Financial Statements
Morgan Stanley Insured Municipal Trust
REVISED INVESTMENT POLICY
On August 24, 2005, the Trustees of Morgan Stanley Insured Municipal Trust (the
"Trust") approved a change to the Trust's investment policy with respect to
inverse floating rate municipal obligations whereby the Trust now would be
permitted to invest up to 15% of its assets in inverse floating rate municipal
obligations. The inverse floating rate municipal obligations in which the Trust
will invest are typically created through a division of a fixed rate municipal
obligation into two separate instruments, a short-term obligation and a
long-term obligation. The interest rate on the short-term obligation is set at
periodic auctions. The interest rate on the long-term obligation is the rate the
issuer would have paid on the fixed income obligation: (i) plus the difference
between such fixed rate and the rate on the short-term obligation, if the
short-term rate is lower than the fixed rate; or (ii) minus such difference if
the interest rate on the short-term obligation is higher than the fixed rate.
The interest rates on these obligations generally move in the reverse direction
of market interest rates. If market interest rates fall, the interest rate on
the obligation will increase and if market interest rates increase, the interest
rate on the obligation will fall. Inverse floating rate municipal obligations
offer the potential for higher income than is available from fixed rate
obligations of comparable maturity and credit rating. They also carry greater
risks. In particular, the prices of inverse floating rate municipal obligations
are more volatile, i.e., they increase and decrease in response to changes in
interest rates to a greater extent than comparable fixed rate obligations.
26
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TRUSTEES
Michael Bozic
Charles A. Fiumefreddo
Edwin J. Garn
Wayne E. Hedien
James F. Higgins
Dr. Manuel H. Johnson
Joseph J. Kearns
Michael E. Nugent
Fergus Reid
OFFICERS
Charles A. Fiumefreddo
Chairman of the Board
Ronald E. Robison
President and Principal Executive Officer
J. David Germany
Vice President
Dennis F. Shea
Vice President
Barry Fink
Vice President
Amy R. Doberman
Vice President
Carsten Otto
Chief Compliance Officer
Stefanie V. Chang Yu
Vice President
Francis J. Smith
Treasurer and Chief Financial Officer
Mary E. Mullin
Secretary
TRANSFER AGENT
Morgan Stanley Trust
Harborside Financial Center, Plaza Two
Jersey City, New Jersey 07311
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281
INVESTMENT ADVISER
Morgan Stanley Investment Advisors Inc.
1221 Avenue of the Americas
New York, New York 10020
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.
Investments and services offered through Morgan Stanley DW Inc., member SIPC.
(c) 2006 Morgan Stanley
[MORGAN STANLEY LOGO]
MORGAN STANLEY FUNDS
Morgan Stanley
Insured Municipal Trust
Semiannual Report
April 30, 2006
[MORGAN STANLEY LOGO]
IMTRPT-37974RPT-RA06-00484P-Y04/06
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semiannual reports.
Item 6.
Refer to Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semiannual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Applicable only to reports covering periods ending on or after December 31,
2005.
Item 9. Closed-End Fund Repurchases
REGISTRANT PURCHASE OF EQUITY SECURITIES
(d) Maximum Number
(or Approximate
(a) Total (c) Total Number of Dollar Value) of
Number of (b) Average Shares (or Units) Shares (or Units)
Shares (or Price Paid Purchased as Part of that May Yet Be
Units) per Share Publicly Announced Purchased Under the
Period Purchased (or Unit) Plans or Programs Plans or Programs
------ ---------- ----------- -------------------- -------------------
November 1, 2005 -
November 30, 2005 58,900 $13.5188 N/A N/A
December 1, 2005 --
December 31, 2005 108,500 $13.5217 N/A N/A
January 1, 2006 --
January 31, 2006 137,000 $14.1290 N/A N/A
February 1, 2006 --
February 28, 2006 79,400 $14.4662 N/A N/A
March 1, 2006 --
March 31, 2006 52,100 $14.4427 N/A N/A
April 1, 2006 --
April 30, 2006 44,600 $14.2293 N/A N/A
Total 480,500 $14.0513 N/A N/A
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
(a) The Trust's principal executive officer and principal financial officer have
concluded that the Trust's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Trust in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
2
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
Item 12. Exhibits
(a) Code of Ethics - Not applicable for semiannual reports.
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Morgan Stanley Insured Municipal Trust
/s/ Ronald E. Robison
-------------------------------------
Ronald E. Robison
Principal Executive Officer
June 20, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Ronald E. Robison
-------------------------------------
Ronald E. Robison
Principal Executive Officer
June 20, 2006
/s/ Francis Smith
-------------------------------------
Francis Smith
Principal Financial Officer
June 20, 2006
4