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: 811-06590
Morgan Stanley Insured Municipal Income 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, 2003
Date of reporting period: April 30, 2003
Item 1. Report to Stockholders
Morgan Stanley Insured Municipal Income Trust
Letter to the Shareholders ▪ April 30, 2003
Dear Shareholder:
During the six-month period ended April 30, 2003, U.S. economic growth was positive but disappointing. The pattern of the recovery remained uneven with many indicators fluctuating between strength and weakness. The military conflict in Iraq and the ongoing war against terrorism cast a shadow over the economy and the financial markets. The sluggish economy and uncertain geopolitical outlook generally favored bonds and led to lower interest rates throughout the period.
Consumer spending was the best-performing sector of the economy last year. Mortgage refinancing and low auto loan rates helped keep Americans buying. By year-end a growing apprehension about Iraq began to dominate investor sentiment and consumer confidence waned. The most noticeable impact of the evolving war risk was a spike in oil prices that had a dampening effect similar to a tax increase. Confidence was also shaken when unemployment reached an eight-year high. To guard against further downside risks, the Federal Reserve Board lowered the federal funds rate from 1.75 to 1.25 percent in early November. This marked the first change by the central bank in almost a year. Early in 2003, the Bush administration proposed several tax relief measures to bolster the economy. Uncertainty prior to the invasion of Iraq slowed economic activity in March. However, resolution of the conflict prompted the financial markets again to focus on the economic outlook.
Municipal Market Conditions
The yield on the 30-year insured municipal bond index continued to trend lower over the six-month period ended April 30, 2003. The yield declined from a high of 5.10 percent in November 2002 to a low of 4.70 percent in April. Throughout the period, the municipal yield curve was at or near its steepest level in 25 years. The pickup along the yield curve for extending maturities from one to 30 years was 350 basis points on April 30, 2003.
The ratio of municipal yields as a percentage of U.S. Treasury yields is used to gauge the relative value of municipals. In October 2002 the ratio of 30-year insured municipal bond yields to 30-year Treasuries moved above 100 percent, remaining there through the first quarter of 2003. In April the ratio fell to 99 percent as the Treasury flight-to-quality rally subsided. This still-high ratio indicated that municipals were relatively cheaper than Treasuries.
The President's tax proposals, which included elimination of taxation on
dividend income and acceleration of a reduction in tax brackets, affected the
municipal market. The tax-exempt bond market reacted to potential tax-reform
risk by adjusting the relationship of tax-exempt issues to taxables.
Long-term municipal volume, as reported in The Bond Buyer, increased to a record $357 billion in 2002 as state and local governments took advantage of lower interest rates to meet cash flow needs and refinance outstanding debt. In the first four months of 2003, new-issue volume reached a record
Morgan Stanley Insured Municipal Income Trust
Letter to the Shareholders ▪ April 30, 2003 continued
$113 billion, 21 percent above last year's level. We expect this pace to
continue throughout the year as budgetary problems force states and
municipalities to borrow. California's share of national volume increased to 19
percent. New York, Florida, Texas and New Jersey, the next largest states in
terms of issuance, represented an additional 28 percent of the national
total.
Performance
For the six months ended April 30, 2003, Morgan Stanley Insured Municipal Income Trust (IIM) produced a total return of 5.36 percent. This return is based on the change in net asset value (NAV) plus the reinvestment of tax-free dividends totaling $0.45 per share. IIM's price on the New York Stock Exchange (NYSE) increased from $14.05 to $14.81 per share during the same period. Based on this change plus the reinvestment of tax-free dividends, IIM's total market value return was 8.77 percent. On April 30, 2003 IIM's market price was at a 7.50 percent discount to its NAV.
Monthly dividends for the second quarter of 2003 declared in March were unchanged at $0.075 per share. The dividend reflects the level of the Trust's undistributed net investment income and projected earnings. The Trust's level of undistributed net investment income was $0.207 per share on April 30, 2003, versus $0.187 per share six months earlier. Past performance is no guarantee of future results.
Portfolio Structure
The Trust's total net assets of $552 million, including outstanding Auction Rate Preferred Shares (ARPS), were diversified among 13 long-term sectors and 77 credits. Issues in four essential service sectors: general obligation, water and sewer, municipal electric and transportation accounted for 59 percent of the long- term portfolio. The five states with the largest holdings – Texas, New York, Pennsylvania, California and Illinois – collectively represented 40 percent of total investments.
Importantly, the Trust has avoided bonds secured by tobacco settlement payments. Many states have issued bonds backed by their entitlement to revenues from the Master Settlement Agreement with tobacco companies. A class action judgment against Philip Morris, a major participant in the agreement, has created uncertainty about the company's ability to meet its obligations.
At the end of April the portfolio's average maturity was 19 years. In the first quarter of 2003 the Trust sold five and ten-year U.S. Treasury futures to hedge the portfolio against potential increases in interest rates. This action reduced IIM's duration, a measure of sensitivity to interest rate changes, from 7.4 to 7.3 years. The accompanying charts provide current information on the portfolio's credit enhancements, maturity distribution and sector concentrations. Optional redemption provisions by year of the call and respective cost (book) yields are also charted.
The Trust's procedure for reinvestment of all dividends and distributions on common shares is through purchases in the open market. This method helps support the market value of the Trust's shares. In
2
Morgan Stanley Insured Municipal Income Trust
Letter to the Shareholders ▪ April 30, 2003 continued
addition, we would like to remind you that the Trustees have approved a procedure whereby the Trust may, when appropriate, purchase shares in the open market or in privately negotiated transactions at a price not above market value or net asset value, whichever is lower at the time of purchase. The Trust may also utilize procedures to reduce or eliminate the amount of outstanding ARPS, including their purchase in the open market or in privately negotiated transactions. During the six-month period ended April 30, 2003 the Trust purchased and retired 467,675 shares of common stock at a weighted average market discount of 9.12 percent.
The Impact of Leveraging
As discussed in previous reports, the total income available for distribution to common shareholders includes incremental income provided by the Trust's outstanding ARPS. ARPS dividends reflect prevailing short-term interest rates on maturities normally ranging from one week to two years. 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 the 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.
Current earnings continued to benefit from lower short-term borrowing costs of ARPS. During the six-month period, ARPS leverage contributed approximately $0.10 per share to common share earnings. IIM has five ARPS series totaling $155 million and representing 28 percent of total net assets. Two series are currently two-year auctions maturing in January 2004 and July 2004, yielding 2.47 and 2.20 percent, respectively. The yield on IIM's weekly ARPS series ranged between 0.90 and 1.75 percent.
We appreciate your ongoing support of Morgan Stanley Insured Municipal
Income Trust and look forward to continuing to serve your investment needs.
Very truly yours,
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| Charles A. Fiumefreddo Chairman of the Board |
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Mitchell M.
Merin President |
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Morgan Stanley Insured Municipal Income Trust
Letter to the Shareholders ▪ April 30, 2003 continued
4
Morgan Stanley Insured Municipal Income Trust
Letter to the Shareholders ▪ April 30, 2003 continued
5
Morgan Stanley Insured Municipal Income Trust
Letter to the Shareholders ▪ April 30, 2003 continued
Geographic Summary of Investments
Based on Market Value as a Percent
of Total Investments
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| Arizona | |
2.0 | % | |||
| California | |
7.4 | ||||
| Colorado | |
1.4 | ||||
| Connecticut | |
2.0 | ||||
| District of Columbia | |
2.8 | ||||
| Florida | |
5.5 | ||||
| Hawaii | |
1.0 | ||||
| Idaho | |
0.7 | ||||
| Illinois | |
7.4 | ||||
| Indiana | |
5.3 | % | |||
| Kentucky | |
3.4 | ||||
| Louisiana | |
1.4 | ||||
| Maine | |
0.9 | ||||
| Massachusetts | |
2.0 | ||||
| Michigan | |
1.9 | ||||
| Minnesota | |
1.0 | ||||
| Missouri | |
1.0 | ||||
| Nevada | |
5.4 | ||||
| New Hampshire | |
0.8 | % | |||
| New Jersey | |
1.0 | ||||
| New York | |
8.4 | ||||
| North Carolina | |
1.2 | ||||
| Ohio | |
1.5 | ||||
| Pennsylvania | |
7.5 | ||||
| Rhode Island | |
2.3 | ||||
| South Carolina | |
2.5 | ||||
| Tennessee | |
0.8 | ||||
| Texas | |
9.8 | % | |||
| Utah | |
1.7 | ||||
| Virginia | |
1.2 | ||||
| Washington | |
5.8 | ||||
| West Virginia | |
1.5 | ||||
| Wisconsin | |
1.5 | ||||
| Total | |
100.0 | % | |||
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6
Morgan Stanley Insured Municipal Income Trust
Portfolio of Investments ▪ April 30, 2003 (unaudited)
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| PRINCIPAL AMOUNT IN THOUSANDS |
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COUPON RATE |
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MATURITY DATE |
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VALUE | |||||||||||
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Tax-Exempt Municipal Bonds (119.0%) | |||||||||||||||||
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General Obligation (14.1%) | |||||||||||||||||
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District of Columbia, | |||||||||||||||||
| $ | 5,000 | |
Refg Ser 1993 B (Ambac) | |
5.50 | % | |
06/01/09 | |
$ | 5,714,100 | |||||||
| 6,000 | |
Refg Ser 1993 B (FSA) | |
5.50 | |
06/01/10 | |
6,847,320 | ||||||||||
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Florida State Board of Education, | |||||||||||||||||
| 5,000 | |
Capital Outlay Refg 2002 Ser C (MBIA) | |
5.00 | |
06/01/19 | |
5,347,200 | ||||||||||
| 5,000 | |
Capital Outlay Refg 2002 Ser C (MBIA) | |
5.00 | |
06/01/20 | |
5,309,050 | ||||||||||
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Aurora West School District 129, Illinois, | |||||||||||||||||
| 1,000 | |
School Building Ser 2002 A (FGIC) | |
5.75 | |
02/01/20 | |
1,121,030 | ||||||||||
| 2,000 | |
School Building Ser 2002 A (FGIC) | |
5.75 | |
02/01/21 | |
2,234,260 | ||||||||||
| 15,000 | |
Chicago, Illinois, Neighborhoods Alive 21 Ser 2001 A (FGIC) | |
5.50 | |
01/01/36 | |
15,886,050 | ||||||||||
| 6,000 | |
Clark County Sanitation District, Nevada, Refg 1993 (FGIC) | |
5.70 | |
07/01/12 | |
6,106,440 | ||||||||||
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Pennsylvania, | |||||||||||||||||
| 995 | |
First Ser 2003 RITES PA – 1112 A (MBIA) | |
8.402 | ‡ | |
01/01/18 | |
1,144,907 | |||||||||
| 1,555 | |
First Ser 2003 RITES PA – 1112 B (MBIA) | |
8.402 | ‡ | |
01/01/19 | |
1,766,169 | |||||||||
| 4,000 | |
Houston, Texas, Public Improvement & Refg Ser 2001 B (FSA) | |
5.50 | |
03/01/17 | |
4,408,440 | ||||||||||
| 51,550 | |
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55,884,966 | |||||||||||||
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Educational Facilities Revenue (4.9%) | |||||||||||||||||
| 3,000 | |
District of Columbia, American Association for the Advancement of Science Ser 1997 (Ambac) | |
5.125 | |
01/01/27 | |
3,063,810 | ||||||||||
| 4,000 | |
Illinois Educational Facilities
Authority, DePaul University Refg Ser 1997 (Ambac) |
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5.50 | |
10/01/19 | |
4,411,560 | ||||||||||
| 4,000 | |
New Hampshire Health & Education Facilities Authority, University of New Hampshire Ser 2001 (Ambac) | |
5.125 | |
07/01/33 | |
4,137,840 | ||||||||||
| 5,000 | |
New Jersey Educational Facilities
Authority, Higher Education Capital Improvement Fund, Series 2002 A (Ambac)†† |
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5.25 | |
09/01/21 | |
5,381,700 | ||||||||||
| 2,500 | |
Rhode Island Health & Educational Building Corporation, Providence College Ser 1993 (MBIA) | |
5.60 | |
11/01/15 | |
2,599,225 | ||||||||||
| 18,500 | |
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19,594,135 | |||||||||||||
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Electric Revenue (16.4%) | |||||||||||||||||
| 10,000 | |
California Department of Water Resources,
Power Supply Ser 2002 A (Ambac) |
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5.375 | |
05/01/18 | |
11,045,000 | ||||||||||
| 6,000 | |
North Carolina Municipal Power Agency, #1 Catawba Ser 2003 A (MBIA) | |
5.25 | |
01/01/19 | |
6,491,100 | ||||||||||
| 3,000 | |
Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993 (MBIA) | |
5.375 | |
01/01/25 | |
3,299,130 | ||||||||||
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See Notes to Financial Statements
7
Morgan Stanley Insured Municipal Income Trust
Portfolio of Investments ▪ April 30, 2003 (unaudited) continued
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| PRINCIPAL AMOUNT IN THOUSANDS |
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COUPON RATE |
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MATURITY DATE |
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VALUE | |||||||||||
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Lower Colorado River Authority, Texas, | |||||||||||||||||
| $ | 10,000 | |
Refg Ser 1999 A (FSA) | |
5.875 | % | |
05/15/16 | |
$ | 11,544,900 | |||||||
| 5,000 | |
Refg Ser 2001 (FSA) | |
5.00 | |
05/15/26 | |
5,096,050 | ||||||||||
| 4,000 | |
Refg Ser 2002 (MBIA) | |
5.00 | |
05/15/31 | |
4,066,240 | ||||||||||
| 5,000 | |
Intermountain Power Agency, Utah, 2003 Ser A (FSA) | |
5.00 | |
07/01/21 | |
5,231,000 | ||||||||||
| 10,000 | |
Washington Public Power Supply System,
Nuclear Proj #1 Refg Ser 1993 A (MBIA) |
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5.70 | |
07/01/17 | |
10,267,700 | ||||||||||
| 8,000 | |
Wisconsin Public Power, Refg Ser 1993 A (Ambac) | |
5.25 | |
07/01/21 | |
8,206,160 | ||||||||||
| 61,000 | |
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65,247,280 | |||||||||||||
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Hospital Revenue (12.2%) | |||||||||||||||||
| 5,000 | |
Mesa Industrial Development Authority, Arizona, Discovery Health Ser 1999 A (MBIA) | |
5.875 | |
01/01/16 | |
5,731,100 | ||||||||||
| 5,000 | |
Sarasota County Public Hospital Board, Florida, Sarasota Memorial Hospital Refg Ser 1998 B (MBIA) | |
5.25 | |
07/01/24 | |
5,443,550 | ||||||||||
| 3,000 | |
Indiana Health Facilities Financing Authority, Deaconess Hospital Inc Refg Ser 1993 (MBIA) | |
5.75 | |
03/01/15 | |
3,068,430 | ||||||||||
| 5,000 | |
Kentucky Economic Development Finance Authority, St Elizabeth Medical Center Inc Ser 1993 A (FGIC) | |
6.00 | |
12/01/22 | |
5,221,350 | ||||||||||
| 3,935 | |
Maine Health & Higher Educational Facilities Authority, Ser 1993 A (FSA) | |
5.50 | |
07/01/23 | |
4,034,241 | ||||||||||
| 5,500 | |
Massachusetts Health & Educational Facilities Authority, Lahey Clinic Medical Center Ser B (MBIA) | |
5.625 | |
07/01/15 | |
5,640,800 | ||||||||||
| 2,000 | |
Missouri Health & Educational Facilities Authority, SSM Health Care Ser 1998 A (MBIA) | |
5.00 | |
06/01/22 | |
2,039,340 | ||||||||||
| 4,000 | |
Washington County Hospital Authority, Pennsylvania, Washington Hospital Ser 1993 (Ambac) | |
5.625 | |
07/01/23 | |
4,104,440 | ||||||||||
| 4,000 | |
Chattanooga-Hamilton County Hospital Authority, Tennessee, Erlanger Medical Center Refg Ser 1993 (FSA) | |
5.50 | |
10/01/13 | |
4,132,760 | ||||||||||
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Amarillo Health Facilities Corporation, Texas, | |||||||||||||||||
| 3,020 | |
Baptist St Anthony's Hospital Ser 1998 (FSA) | |
5.50 | |
01/01/16 | |
3,396,171 | ||||||||||
| 5,075 | |
Baptist St Anthony's Hospital Ser 1998 (FSA) | |
5.50 | |
01/01/17 | |
5,693,592 | ||||||||||
| 45,530 | |
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48,505,774 | |||||||||||||
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Industrial Development/Pollution Control Revenue (8.5%) | |||||||||||||||||
| 7,500 | |
Adams County, Colorado, Public Service Co
of Colorado Refg 1993 Ser A (MBIA) |
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5.875 | |
04/01/14 | |
7,601,550 | ||||||||||
| 5,000 | |
Hawaii Department of Budget and Finance, Hawaiian Electric Co Ser 1999 C (AMT) (Ambac) | |
6.20 | |
11/01/29 | |
5,746,550 | ||||||||||
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See Notes to Financial Statements
8
Morgan Stanley Insured Municipal Income Trust
Portfolio of Investments ▪ April 30, 2003 (unaudited) continued
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| PRINCIPAL AMOUNT IN THOUSANDS |
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COUPON RATE |
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MATURITY DATE |
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VALUE | |||||||||||
| $ | 12,000 | |
Indiana Development Finance Authority, PSI Energy Inc Ser 1993 B (AMT) (MBIA) | |
5.75 | % | |
02/15/28 | |
$ | 12,273,240 | |||||||
| 4,900 | |
Monroe County, Michigan, Detroit Edison Co Ser CC (AMT) (MBIA) | |
6.55 | |
06/01/24 | |
5,016,228 | ||||||||||
| 3,000 | |
New York State Energy Research & Development Authority, Brooklyn Union Gas Co 1991 Ser D (AMT) (MBIA) | |
9.962 | ‡ | |
07/08/26 | |
3,144,720 | |||||||||
| 32,400 | |
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33,782,288 | |||||||||||||
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Mortgage Revenue – Multi-Family (0.8%) | |||||||||||||||||
| 2,975 | |
West Virginia Housing Development Fund, Ser A (Ambac) | |
5.65 | |
11/01/21 | |
3,031,733 | ||||||||||
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Mortgage Revenue – Single Family (3.1%) | |||||||||||||||||
| 11,040 | |
Connecticut Housing Finance Authority, 1992 Ser A-2 (AMT) (Secondary FSA) | |
6.05 | |
11/15/25 | |
11,218,848 | ||||||||||
| 1,035 | |
Maine Housing Authority, Mortgage Purchase 1990 Ser A-6 (AMT) (Secondary MBIA) | |
6.35 | |
11/15/22 | |
1,056,725 | ||||||||||
| 12,075 | |
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12,275,573 | |||||||||||||
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Public Facilities Revenue (5.2%) | |||||||||||||||||
| 5,000 | |
San Jose Financing Authority, California, Civic Center Ser 2002 B (Ambac) | |
5.00 | |
06/01/37 | |
5,105,250 | ||||||||||
| 3,000 | |
Orange County School Board, Florida, Ser 2001 A COPs (Ambac) | |
5.25 | |
08/01/14 | |
3,387,780 | ||||||||||
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Marion County Convention & Recreational Facilities Authority, Indiana, | |||||||||||||||||
| 2,400 | |
Refg Ser 2003 A (Ambac) (WI) | |
5.00 | |
06/01/19 | |
2,526,192 | ||||||||||
| 1,400 | |
Refg Ser 2003 A (Ambac) (WI) | |
5.00 | |
06/01/21 | |
1,456,196 | ||||||||||
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Kentucky Property & Building Commission, | |||||||||||||||||
| 1,660 | |
Project #74 Refg Ser 2002 A (FSA) | |
5.375 | |
02/01/17 | |
1,834,798 | ||||||||||
| 1,500 | |
Project #74 Refg Ser 2002 A (FSA) | |
5.375 | |
02/01/18 | |
1,647,465 | ||||||||||
| 4,200 | |
New York State Dormitory Authority, School Districts Ser 2002 E (MBIA) | |
5.50 | |
10/01/17 | |
4,725,378 | ||||||||||
| 19,160 | |
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20,683,059 | |||||||||||||
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Recreational Facilities Revenue (1.8%) | |||||||||||||||||
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Metropolitan Pier & Exposition Authority, Illinois, | |||||||||||||||||
| 3,000 | |
McCormick Place, Refg Ser 2002 B (MBIA) | |
0.00 | # | |
06/15/18 | |
2,067,480 | |||||||||
| 5,000 | |
McCormick Place, Ser 2002 A (MBIA) | |
5.25 | |
06/15/42 | |
5,222,150 | ||||||||||
| 8,000 | |
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7,289,630 | |||||||||||||
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Transportation Facilities Revenue (23.9%) | |||||||||||||||||
| 9,000 | |
Long Beach California, Harbor Refg Ser 1998 A (AMT) (FGIC) | |
6.00 | |
05/15/18 | |
10,770,390 | ||||||||||
| 5,000 | |
Chicago, Illinois, Chicago-O'Hare Int'l Airport Second Lien Refg 1993 Ser A (AMT) (MBIA) | |
5.60 | |
01/01/18 | |
5,112,800 | ||||||||||
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See Notes to Financial Statements
9
Morgan Stanley Insured Municipal Income Trust
Portfolio of Investments ▪ April 30, 2003 (unaudited) continued
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| PRINCIPAL AMOUNT IN THOUSANDS |
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COUPON RATE |
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MATURITY DATE |
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VALUE | |||||||||||
| $ | 4,000 | |
Illinois Toll Highway Authority, Priority Refg 1998 Ser A (FSA) | |
5.50 | % | |
01/01/15 | |
$ | 4,619,560 | |||||||
| 5,000 | |
Minneapolis-St Paul Metropolitan Airports Commission, Minnesota, Ser 2001 C (FGIC) | |
5.25 | |
01/01/32 | |
5,224,150 | ||||||||||
| 3,250 | |
St Louis, Missouri, Lambert Int'l Airport Ser 2001 A (MBIA) | |
5.00 | |
07/01/20 | |
3,402,847 | ||||||||||
| 9,000 | |
Nevada Department of Business & Industry, Las Vegas Monorail 1st Tier Ser 2000 (Ambac) | |
5.375 | |
01/01/40 | |
9,532,440 | ||||||||||
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Metropolitan Transportation Authority, New York, | |||||||||||||||||
| 3,000 | |
Dedicated Tax Fund Ser 2002 A (FSA) | |
5.25 | |
11/15/24 | |
3,180,090 | ||||||||||
| 10,000 | |
Transportation Refg Ser 2002 A (FGIC) | |
5.00 | |
11/15/25 | |
10,313,700 | ||||||||||
| 10,000 | |
Triborough Bridge & Tunnel Authority, New York, Refg 2002 E (MBIA) | |
5.25 | |
11/15/22 | |
10,704,600 | ||||||||||
| 3,000 | |
Cleveland, Ohio, Airport Ser 2000 A (FSA) | |
5.00 | |
01/01/31 | |
3,057,210 | ||||||||||
| 5,000 | |
South Carolina Transportation Infrastructure Bank, Ser 1999 A (Ambac) | |
5.50 | |
10/01/16 | |
5,628,550 | ||||||||||
| 5,000 | |
Texas Turnpike Authority, Cental Texas First Tier Ser 2002-A (Ambac) | |
5.50 | |
08/15/39 | |
5,330,550 | ||||||||||
| 4,000 | |
Salt Lake City, Utah, Airport Refg Ser 1993 B (FGIC) | |
5.875 | |
12/01/18 | |
4,175,640 | ||||||||||
| 3,000 | |
Richmond Metropolitan Authority, Virginia, Refg Ser 2002 (FGIC) | |
5.25 | |
07/15/22 | |
3,348,900 | ||||||||||
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Port of Seattle, Washington, | |||||||||||||||||
| 5,000 | |
Ser 2001 B (AMT) (MBIA) | |
5.625 | |
02/01/24 | |
5,262,250 | ||||||||||
| 5,000 | |
Ser 2001 A (FGIC) | |
5.00 | |
04/01/31 | |
5,071,850 | ||||||||||
| 88,250 | |
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94,735,527 | |||||||||||||
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Water & Sewer Revenue (15.9%) | |||||||||||||||||
| 5,000 | |
San Diego County Water Authority, California, Ser 2002A COPs (MBIA) | |
5.00 | |
05/01/27 | |
5,158,900 | ||||||||||
| 5,000 | |
Tampa Bay Water Authority, Florida, Ser 2001 A (FGIC) | |
5.00 | |
10/01/28 | |
5,139,200 | ||||||||||
| 2,470 | |
Detroit, Michigan, Sewage Refg Ser 1993 A (FGIC) | |
5.70 | |
07/01/13 | |
2,536,517 | ||||||||||
| 3,000 | |
Grand Rapids, Michigan, Sewer Impr & Refg Ser 1998 A (FGIC) | |
4.75 | |
01/01/28 | |
3,010,170 | ||||||||||
| 5,080 | |
Las Vegas Water District, Nevada, Impr & Refg Ser 2003 A (FGIC) | |
5.25 | |
06/01/19 | |
5,501,335 | ||||||||||
|
Cleveland, Ohio, | |||||||||||||||||
| 1,500 | |
Waterworks 2002 Ser K (FGIC) | |
5.25 | |
01/01/20 | |
1,608,855 | ||||||||||
| 1,300 | |
Waterworks 2002 Ser K (FGIC) | |
5.25 | |
01/01/21 | |
1,387,542 | ||||||||||
| 2,000 | |
Waterworks Impr & Refg 1998 Ser I (FSA) | |
5.00 | |
01/01/23 | |
2,059,260 | ||||||||||
| 4,000 | |
Allegheny County Sanitary Authority, Pennsylvania, Sewer Ser 2000 (MBIA) | |
5.50 | |
12/01/24 | |
4,345,360 | ||||||||||
| 5,000 | |
Philadelphia, Pennsylvania, Water & Wastewater Ser 1998 (Ambac) | |
5.25 | |
12/15/14 | |
5,686,050 | ||||||||||
| 10,000 | |
Houston, Texas, Water & Sewer Jr Lien
Refg Ser 2000 B (FGIC) |
|
5.25 | |
12/01/30 | |
10,432,900 | ||||||||||
| 5,000 | |
King County, Washington, Sewer Refg 2001 (FGIC) | |
5.00 | |
01/01/31 | |
5,091,200 | ||||||||||
|
||||||||||||||||||
See Notes to Financial Statements
10
Morgan Stanley Insured Municipal Income Trust
Portfolio of Investments ▪ April 30, 2003 (unaudited) continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| PRINCIPAL AMOUNT IN THOUSANDS |
|
|
COUPON RATE |
|
MATURITY DATE |
|
VALUE | |||||||||||
|
Seattle, Washington, | |||||||||||||||||
| $ | 2,890 | |
Water System & Refg Ser 2003 (MBIA) (WI) | |
5.00 | % | |
09/01/20 | |
$ | 3,052,273 | |||||||
| 2,890 | |
Water System & Refg Ser 2003 (MBIA) (WI) | |
5.00 | |
09/01/23 | |
3,000,947 | ||||||||||
| 5,000 | |
West Virginia Water Development Authority, Loan Program II Refg Ser A-11 (FSA) | |
5.50 | |
11/01/23 | |
5,192,050 | ||||||||||
| 60,130 | |
|
|
|
63,202,559 | |||||||||||||
|
Other Revenue (2.1%) | |||||||||||||||||
|
New York City Transitional Finance Authority, New York | |||||||||||||||||
| 2,000 | |
2000 Ser C (Ambac) | |
5.25 | |
08/01/21 | |
2,145,220 | ||||||||||
| 2,500 | |
2000 Ser C (Ambac) | |
5.25 | |
08/01/22 | |
2,667,750 | ||||||||||
| 3,000 | |
Alexandria Industrial Development Authority, Virginia, Institute for Defense Analysis Ser 2000 A (Ambac) | |
5.90 | |
10/01/30 | |
3,444,780 | ||||||||||
| 7,500 | |
|
|
|
8,257,750 | |||||||||||||
|
Refunded (10.1%) | |||||||||||||||||
| 5,000 | |
Miami-Dade County School Board, Florida, Ser 2001 A COPs (MBIA) | |
5.00 | |
05/01/11 | † | |
5,632,050 | |||||||||
| 5,000 | |
Massachusetts Municipal Wholesale Electric Company, 1993 Ser A (Ambac) (ETM) | |
5.00 | |
07/01/10 | |
5,127,550 | ||||||||||
| 8,000 | |
Washoe County, Nevada, Reno – Sparks Convention Ltd Tax Ser 1993 A (FGIC) (ETM) | |
5.75 | |
07/01/22 | |
8,617,600 | ||||||||||
| 5,000 | |
Allegheny County Hospital Development Authority, Pennsylvania, Pittsburgh Mercy Health Ser 1996 (Ambac) (ETM) | |
5.625 | |
08/15/18 | |
5,567,650 | ||||||||||
| 10,000 | |
Rhode Island Depositors Economic Protection Corporation, Refg 1992 Ser B (MBIA) (ETM) | |
6.00 | |
08/01/17 | |
10,275,300 | ||||||||||
| 4,360 | |
Piedmont Municipal Power Agency, South Carolina, Refg Ser 1993 (MBIA) (ETM) | |
5.375 | |
01/01/25 | |
4,871,341 | ||||||||||
| 37,360 | |
|
|
|
40,091,491 | |||||||||||||
| 444,430 | |
Total Tax-Exempt Municipal Bonds (Cost $442,780,682) | |
472,581,765 | ||||||||||||||
|
Short-Term Tax-Exempt Municipal Obligations (19.5%) | |||||||||||||||||
| 5,000 | |
Tucson, Arizona, Street & Highway Jr Lien Refg Ser 1993 (MBIA) | |
5.50 | |
07/01/03 | † | |
5,132,700 | |||||||||
| 8,000 | |
Redding, California, Ser 1993 A COPs (FGIC) | |
10.07 | ‡ | |
06/27/03 | † | |
8,435,040 | ||||||||
| 4,100 | |
Idaho Health Facilities Authority, St Luke's Regional Medical Center Ser 2000 (FSA) (Demand 05/01/03) | |
1.28 | * | |
07/01/30 | |
4,100,000 | |||||||||
| 10,000 | |
Marion County Convention & Recreational Facilities Authority, Indiana, Excise Tax Refg Ser 1993 A (Ambac) (redeemable 06/01/03) | |
5.50 | |
06/01/21 | |
10,037,700 | ||||||||||
| 10,000 | |
Louisville & Jefferson County Metropolitan Sewer District, Kentucky, Ser 1993 (MBIA) (redeemable 05/15/03) | |
5.30 | |
05/15/19 | |
10,217,300 | ||||||||||
|
||||||||||||||||||
See Notes to Financial Statements
11
Morgan Stanley Insured Municipal Income Trust
Portfolio of Investments ▪ April 30, 2003 (unaudited) continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| PRINCIPAL AMOUNT IN THOUSANDS |
|
|
COUPON RATE |
|
MATURITY DATE |
|
VALUE | |||||||||||
| $ | 6,850 | |
Louisiana Public Facilities Authority, Our Lady of the Lake Regional Medical Center Ser 1993 D & E (FSA) | |
8.385 | ‡% | |
05/28/04 | † | |
$ | 7,799,273 | ||||||
| 9,200 | |
New York City Municipal Water Finance
Authority, New York, Ser 2000 Ser C (Demand 05/01/03) |
|
1.26 | * | |
06/15/33 | |
9,200,000 | |||||||||
| 18,000 | |
Pennsylvania State Higher Educational Assistant Agency, Student Loan 1988 Ser D (AMT) (Ambac) (redeemable 07/01/03) | |
6.05 | |
01/01/19 | |
18,507,060 | ||||||||||
| 4,000 | |
Harris County Health Facilities Development Corporation, Texas, Methodist Hospital Ser 2002 (Demand 05/01/03) | |
1.35 | * | |
12/01/32 | |
4,000,000 | |||||||||
| 75,150 | |
Total Short-Term Tax-Exempt Municipal Obligations (Cost $74,397,849) | |
77,429,073 | ||||||||||||||
| $ | 519,580 | |
Total Investments (Cost $517,178,531) (a) (b) | |
138.5 | % | |
550,010,838 | ||||||||||
|
Other Assets in Excess of Liabilities | |
0.6 | |
2,373,364 | |||||||||||||
|
Preferred Shares of Beneficial Interest | |
(39.1 | ) | |
(155,132,788 | ) | |||||||||||
|
Net Assets Applicable to Common Shareholders | |
100.0 | % | |
$ | 397,251,414 | |||||||||||
|
||||||||||||||||||
|
|
| 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. |
| RITES | Residual Interest Tax-Exempt Securities. |
| WI | Security purchased on a when-issued basis. |
| † | Prerefunded to call date shown. |
| †† | A portion of this security has been physically segregated in connection with open futures contracts. |
| ‡ | Current coupon rate for residual interest bond. This rate resets periodically as the auction rate on the related short-term security fluctuates. |
| # | Currently a zero coupon security; will convert to 5.30% on June 15, 2012. |
| * | Current coupon of variable rate demand obligation. |
| (a) | Securities have been designated as collateral in an amount equal to $16,436,405 in connection with the open futures contracts and the purchase of when-issued securities. |
| (b) | The aggregate cost for federal income tax purposes approximates the aggregate cost for book purposes. The aggregate gross unrealized appreciation is $32,915,150 and the aggregate gross unrealized depreciation is $82,843, resulting in net unrealized appreciation of $32,832,307. |
| 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
12
Morgan Stanley Insured Municipal Income Trust
Portfolio of Investments ▪ April 30, 2003 (unaudited) continued
Futures Contracts Open at April 30, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| NUMBER OF CONTRACTS |
|
LONG/SHORT | |
DESCRIPTION, DELIVERY MONTH AND YEAR |
|
UNDERLYING FACE AMOUNT AT VALUE |
|
UNREALIZED APPRECIATION/ DEPRECIATION |
||||||||||
| 50 | |
Short | |
U.S. Treasury Notes 5 Yr June / 2003 |
|
$(5,677,735) | |
$(9,966) | ||||||||||
| 25 | |
Short | |
U.S. Treasury Notes 10 Yr June / 2003 |
|
(2,904,102) | |
25,877 | ||||||||||
|
Net unrealized appreciation | |
$15,911 | |||||||||||||||
|
||||||||||||||||||
Geographic Summary of Investments
Based on Market Value as a Percent
of Net Assets Applicable to Common Shareholders
|
|
|
|
|
|
|
| Arizona | |
2.7 | % | |||
| California | |
10.2 | ||||
| Colorado | |
1.9 | ||||
| Connecticut | |
2.8 | ||||
| District of Columbia | |
3.9 | ||||
| Florida | |
7.6 | ||||
| Hawaii | |
1.5 | ||||
| Idaho | |
1.0 | ||||
| Illinois | |
10.2 | ||||
| Indiana | |
7.4 | % | |||
| Kentucky | |
4.8 | ||||
| Louisiana | |
2.0 | ||||
| Maine | |
1.3 | ||||
| Massachusetts | |
2.7 | ||||
| Michigan | |
2.7 | ||||
| Minnesota | |
1.3 | ||||
| Missouri | |
1.4 | ||||
| Nevada | |
7.5 | ||||
| New Hampshire | |
1.0 | % | |||
| New Jersey | |
1.4 | ||||
| New York | |
11.6 | ||||
| North Carolina | |
1.6 | ||||
| Ohio | |
2.0 | ||||
| Pennsylvania | |
10.4 | ||||
| Rhode Island | |
3.2 | ||||
| South Carolina | |
3.5 | ||||
| Tennessee | |
1.0 | ||||
| Texas | |
13.6 | % | |||
| Utah | |
2.4 | ||||
| Virginia | |
1.7 | ||||
| Washington | |
8.0 | ||||
| West Virginia | |
2.1 | ||||
| Wisconsin | |
2.1 | ||||
| Total | |
138.5 | % | |||
|
||||||
See Notes to Financial Statements
13
Morgan Stanley Insured Municipal Income Trust
Financial Statements
Statement of Assets and Liabilities
April 30, 2003 (unaudited)
|
|
|
|
|
|
|
| Assets: | ||||||
| Investments in securities, at
value (cost $517,178,531) |
|
$ | 550,010,838 | |||
| Cash | |
86,395 | ||||
| Receivable for: | ||||||
| Interest | |
9,224,656 | ||||
| Investment sold | |
3,045,000 | ||||
| Prepaid expenses | |
421,881 | ||||
| Total Assets | |
562,788,770 | ||||
| Liabilities: | ||||||
| Payable for: | ||||||
| Investments purchased | |
10,007,249 | ||||
| Investment management fee | |
174,103 | ||||
| Common shares of beneficial interest repurchased | |
78,476 | ||||
| Variation margin | |
38,281 | ||||
| Accrued expenses | |
106,459 | ||||
| Total Liabilities | |
10,404,568 | ||||
| Preferred shares of beneficial
interest, (at liquidation value)
(1,000,000 shares
authorized of non-participating $.01 par value, 3,100 shares outstanding) |
|
155,132,788 | ||||
| Net Assets Applicable to Common Shareholders | |
$ | 397,251,414 | |||
| Composition of Net Assets Applicable to Common Shareholders: | ||||||
| Common shares of beneficial interest
(unlimited shares
authorized of $.01 par value, 24,819,838 shares outstanding) |
|
$ | 358,935,513 | |||
| Net unrealized appreciation | |
32,848,218 | ||||
| Accumulated undistributed net investment income | |
5,145,843 | ||||
| Accumulated undistributed net realized gain | |
321,840 | ||||
| Net Assets Applicable to Common Shareholders | |
$ | 397,251,414 | |||
| Net Asset Value Per Common Share | ||||||
| ($397,251,414 divided by 24,819,838 common shares outstanding) | |
$ | 16.01 | |||
|
||||||
See Notes to Financial Statements
14
Morgan Stanley Insured Municipal Income Trust
Financial Statements continued
Statement of Operations
For the six months ended April 30, 2003 (unaudited)
|
|
|
|
|
|
|
| Net Investment Income: | ||||||
| Interest Income | |
$ | 14,425,736 | |||
| Expenses | ||||||
| Investment management fee | |
955,675 | ||||
| Auction commission fees | |
279,162 | ||||
| Transfer agent fees and expenses | |
74,719 | ||||
| Professional fees | |
28,301 | ||||
| Auction agent fees | |
20,325 | ||||
| Shareholder reports and notices | |
16,505 | ||||
| Trustees' fees and expenses | |
10,846 | ||||
| Registration fees | |
8,878 | ||||
| Custodian fees | |
4,765 | ||||
| Other | |
27,185 | ||||
| Total Expenses | |
1,426,361 | ||||
| Less: expense offset | |
(4,722 | ) | |||
| Net Expenses | |
1,421,639 | ||||
| Net Investment Income | |
13,004,097 | ||||
| Net Realized and Unrealized Gain (Loss): | ||||||
| Net Realized Gain (Loss) on: | ||||||
| Investments | |
983,369 | ||||
| Futures contracts | |
(157,240 | ) | |||
| Net Realized Gain | |
826,129 | ||||
| Net Change in Unrealized Appreciation on: | ||||||
| Investments | |
6,310,197 | ||||
| Futures contracts | |
15,911 | ||||
| Net Appreciation | |
6,326,108 | ||||
| Net Gain | |
7,152,237 | ||||
| Dividends to preferred shareholders from net investment income | |
(1,296,551 | ) | |||
| Net Increase | |
$ | 18,859,783 | |||
|
||||||
See Notes to Financial Statements
15
Morgan Stanley Insured Municipal Income Trust
Financial Statements continued
Statement of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
FOR THE SIX MONTHS ENDED APRIL 30, 2003 |
|
FOR THE YEAR ENDED OCTOBER 31, 2002 |
|||||||
|
(unaudited) | |||||||||
| Increase (Decrease) in Net Assets: | ||||||||||
| Operations: | ||||||||||
| Net investment income | |
$ | 13,004,097 | |
$ | 26,968,728 | ||||
| Net realized gain | |
826,129 | |
5,550,941 | ||||||
| Net change in unrealized appreciation | |
6,326,108 | |
(2,766,900 | ) | |||||
| Dividends to preferred shareholders from net investment income | |
(1,296,551 | ) | |
(3,456,880 | ) | ||||
| Net Increase | |
18,859,783 | |
26,295,889 | ||||||
| Dividends to common shareholders from net investment income | |
(11,283,744 | ) | |
(21,133,899 | ) | ||||
| Decrease from transactions in common shares of beneficial interest | |
(6,684,215 | ) | |
(14,028,728 | ) | ||||
| Net Increase (Decrease) | |
891,824 | |
(8,866,738 | ) | |||||
| Net Assets Applicable to Common Shareholders: | ||||||||||
| Beginning of period | |
396,359,590 | |
405,226,328 | ||||||
| End of Period | ||||||||||
| (Including accumulated undistributed net investment income of $5,145,843 and $4,722,041, respectively) | |
$ | 397,251,414 | |
$ | 396,359,590 | ||||
|
||||||||||
See Notes to Financial Statements
16
Morgan Stanley Insured Municipal Income Trust
Notes to Financial Statements ▪ April 30, 2003 (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 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 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; (2) futures are valued at the latest sale price on the commodities exchange on which they trade unless the Trustees determine 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 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.
17
Morgan Stanley Insured Municipal Income Trust
Notes to Financial Statements ▪ April 30, 2003 (unaudited) continued
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. 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 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.
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 Management Agreement
Pursuant to an Investment Management Agreement with Morgan Stanley Investment Advisors Inc. (the "Investment Manager"), the Trust pays a management fee, calculated weekly and payable monthly, by applying the annual rate of 0.35% to the Trust's weekly 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, 2003 aggregated $58,347,546 and $44,093,883, respectively.
Morgan Stanley Trust, an affiliate of the Investment Manager, is the Trust's transfer agent. At April 30, 2003, the Trust had transfer agent fees and expenses payable of approximately $16,500.
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, 2003 included in Trustees'
18
Morgan Stanley Insured Municipal Income Trust
Notes to Financial Statements ▪ April 30, 2003 (unaudited) continued
fees and expenses in the Statement of Operations amounted to $3,019. At April 30, 2003, the Trust had an accrued pension liability of $48,240 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.
Dividends, which are cumulative, are reset through auction
procedures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| SERIES | |
SHARES* | |
AMOUNT IN THOUSANDS* |
|
RATE* | |
RESET DATE |
|
RANGE OF DIVIDEND RATES** |
||||||||||||
| 1 | |
400 | |
$ | 20,000 | |
1.25 | % | |
05/05/03 | |
0.95 | % | |||||||||
| 2 | |
900 | |
45,000 | |
1.25 | |
05/05/03 | |
1.00– 1.75 | ||||||||||||
| 3 | |
1,000 | |
50,000 | |
2.20 | |
07/12/04 | |
2.20 | ||||||||||||
| 4 | |
400 | |
20,000 | |
2.47 | |
01/05/04 | |
2.47 | ||||||||||||
| 5 | |
400 | |
20,000 | |
1.25 | |
05/05/03 | |
0.90– 1.70 | ||||||||||||
|
||||||||||||||||||||||
|
|
| * | As of April 30, 2003. |
| ** | For the six months ended April 30, 2003. |
Subsequent to April 30, 2003 and up through June 6, 2003, the Trust paid dividends to each of the Series 1 through 5 at rates ranging from 1.00% to 2.47% in the aggregate amount of $360,487.
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.
19
Morgan Stanley Insured Municipal Income Trust
Notes to Financial Statements ▪ April 30, 2003 (unaudited) continued
5. Common Shares of Beneficial Interest
Transactions in common shares of beneficial interest were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARES | |
PAR VALUE | |
CAPITAL PAID IN EXCESS OF PAR VALUE |
|||||||||
| Balance, October 31, 2001 | |
26,284,013 | |
$ | 262,840 | |
$ | 379,385,616 | ||||||
| Treasury shares purchased and retired (weighted average discount 8.17%)* | |
(996,500 | ) | |
(9,965 | ) | |
(14,018,763 | ) | |||||
| Balance, October 31, 2002 | |
25,287,513 | |
252,875 | |
365,366,853 | ||||||||
| Treasury shares purchased and retired (weighted average discount 9.12%)* | |
(467,675 | ) | |
(4,677 | ) | |
(6,679,538 | ) | |||||
| Balance, April 30, 2003 | |
24,819,838 | |
$ | 248,198 | |
$ | 358,687,315 | ||||||
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| * | The Trustees have voted to retire the shares purchased. |
6. Federal Income Tax Status
At October 31, 2002, the Trust had a net capital loss carryover of approximately $504,000 which will be available through October 31, 2004 to offset future capital gains to the extent provided by regulations.
As of October 31, 2002, the Trust had temporary book/tax differences
primarily attributable to book amortization of discount on debt securities and
dividend payable to preferred shareholders.
7. Dividends to Common Shareholders
On March 25, 2003, the Trust declared the following dividends from net investment income:
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| AMOUNT PER SHARE |
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RECORD DATE |
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PAYABLE DATE |
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| $0.075 | |
May 9, 2003 | |
May 23, 2003 | ||||||
| $0.075 | |
June 6, 2003 | |
June 20, 2003 | ||||||
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8. Expense Offset
The expense offset represents a reduction of the custodian fees for earnings on cash balances maintained by the Trust.
9. Risks Relating to Certain Financial Instruments
The Trust may invest a portion of its assets in residual interest bonds, which are inverse floating rate municipal obligations. The prices of these securities are subject to greater market fluctuations during periods of changing prevailing interest rates than are comparable fixed rate obligations.
At April 30, 2003, the Trust held positions in residual interest bonds having a total value of $22,290,109, which represents 5.6% of the Trust's net assets applicable to common shareholders.
20
Morgan Stanley Insured Municipal Income Trust
Notes to Financial Statements ▪ April 30, 2003 (unaudited) continued
To hedge against adverse interest rate changes, the Trust may invest in financial futures contracts or municipal bond index futures contracts ("futures contracts").
These futures contracts involve elements of market risk in excess of the amount reflected in the Statement of Assets and Liabilities. The Trust bears the risk of an unfavorable change in the value of the underlying securities.
At April 30, 2003, the Trust had outstanding futures contracts.
21
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:
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FOR THE SIX MONTHS ENDED APRIL 30, 2003 |
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FOR THE YEAR ENDED OCTOBER 31, |
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2002 | |
2001 | |
2000 | |
1999 | |
1998 | ||||||||||||||||||
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(unaudited) | ||||||||||||||||||||||||||
| Selected Per Share Data: | |||||||||||||||||||||||||||
| Net asset value, beginning of period | |
$ | 15.67 | |
$ | 15.42 | |
$ | 14.44 | |
$ | 13.69 | |
$ | 15.47 | |
$ | 14.69 | |||||||||
| Income (loss) from investment operations: | |||||||||||||||||||||||||||
| Net investment income* | |
0.52 | |
1.04 | |
1.03 | |
1.01 | |
1.01 | |
1.00 | |||||||||||||||
| Net realized and unrealized gain (loss) | |
0.29 | |
0.11 | |
0.90 | |
0.79 | |
(1.77 | ) | |
0.71 | ||||||||||||||
| Common share equivalent of dividends paid to preferred shareholders* | |
(0.05 | ) | |
(0.13 | ) | |
(0.22 | ) | |
(0.22 | ) | |
(0.19 | ) | |
(0.20 | ) | |||||||||
| Total income (loss) from
investment operations |
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0.76 | |
1.02 | |
1.71 | |
1.58 | |
(0.95 | ) | |
1.51 | ||||||||||||||
| Less dividends from net
investment income |
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(0.45 | ) | |
(0.82 | ) | |
(0.78 | ) | |
(0.86 | ) | |
(0.84 | ) | |
(0.78 | ) | |||||||||
| Anti-dilutive effect of acquiring treasury shares* | |
0.03 | |
0.05 | |
0.05 | |
0.03 | |
0.01 | |
0.05 | |||||||||||||||
| Net asset value, end of period | |
$ | 16.01 | |
$ | 15.67 | |
$ | 15.42 | |
$ | 14.44 | |
$ | 13.69 | |
$ | 15.47 | |||||||||
| Market value, end of period | |
$ | 14.81 | |
$ | 14.05 | |
$ | 14.13 | |
$ | 12.813 | |
$ | 13.25 | |
$ | 14.813 | |||||||||
| Total Return† | |
8.77 | %(1) | |
5.35 | % | |
16.70 | % | |
3.29 | % | |
(5.17 | )% | |
18.27 | % | |||||||||
| Ratios to Average Net Assets of Common Shareholders: | |||||||||||||||||||||||||||
| Total expenses (before expense offset) | |
0.73 | %(2) | |
0.72 | % | |
0.71 | % | |
0.73 | % | |
0.70 | % | |
0.69 | % | |||||||||
| Net investment income before preferred stock dividends | |
6.64 | %(2) | |
6.82 | % | |
6.84 | % | |
7.27 | % | |
6.71 | % | |
6.60 | % | |||||||||
| Preferred stock dividends | |
0.66 | %(2) | |
0.87 | % | |
1.43 | % | |
1.59 | % | |
1.26 | % | |
1.30 | % | |||||||||
| Net investment income available to common shareholders | |
5.98 | %(2) | |
5.95 | % | |
5.41 | % | |
5.68 | % | |
5.45 | % | |
5.30 | % | |||||||||
| Supplemental Data: | |||||||||||||||||||||||||||
| Net assets applicable to common shareholders, end of period, in thousands | |
$397,251 | |
$396,360 | |
$405,226 | |
$392,513 | |
$384,277 | |
$439,807 | |||||||||||||||
| Asset coverage on preferred shares at end of period | |
356 | % | |
355 | % | |
361 | % | |
352 | % | |
347 | % | |
383 | % | |||||||||
| Portfolio turnover rate | |
8 | %(1) | |
17 | % | |
13 | % | |
11 | % | |
5 | % | |
7 | % | |||||||||
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| * | 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. |
See Notes to Financial Statements
22
(This page has been left blank intentionally.)
Item 9 - Controls and Procedures
The Trust's chief executive officer and chief 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.
There were no significant changes or corrective actions with regard to
siginficant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation.
Item 10b Exhibits
A separate certification for each principal executive officer and principal
financial officer of the registrant are attached hereto as part of EX-99.CERT.
Items 2 - 8 and Item 10a are not applicable
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 Income Trust
Ronald E. Robison
Principal Executive Officer
June 20, 2003
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.
Ronald E. Robison
Principal Executive Officer
June 20, 2003
Francis Smith
Principal Financial Officer
June 20, 2003
2
EXHIBIT B1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
CERTIFICATIONS
I, Ronald E. Robison, certify that:
1. I have reviewed this report on Form N-CSR of Morgan Stanley Insured
Municipal Income Trust;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations, changes in net assets, and cash flows (if the
financial statements are required to include a statement of cash
flows) of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Rule 30a-2(c) under the Investment
Company Act of 1940) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this report (the "Evaluation Date"); and
3
c) presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated
in this report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: June 20, 2003
Ronald E. Robison
Principal Executive Officer
4
EXHIBIT B2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
CERTIFICATIONS
I, Francis Smith, certify that:
1. I have reviewed this report on Form N-CSR of Morgan Stanley
Insured Municipal Income Trust;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations, changes in net assets, and cash flows (if the
financial statements are required to include a statement of cash
flows) of the registrant as of, and for, the periods presented
in this report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Rule 30a-2(c) under the Investment
Company Act of 1940) for the registrant and have:
(i) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
report is being prepared;
(ii) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this report (the "Evaluation Date"); and
(iii) presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
5
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated
in this report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: June 20, 2003
Francis Smith
Principal Financial Officer
6
SECTION 906 CERTIFICATION
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Morgan Stanley Insured Municipal Income Trust
In connection with the Report on Form N-CSR (the "Report") of the
above-named issuer for the period ended April 30, 2003 that is accompanied by
this certification, the undersigned hereby certifies that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Issuer.
Date: June 20, 2003 Ronald E. Robison
Principal Executive Officer
A signed original of this written statement required by Section 906 has been
provided to Morgan Stanley Insured Municipal Income Trust and will be retained
by Morgan Stanley Insured Municipal Income Trust and furnished to the Securities
and Exchange Commission or its staff upon request.
7
SECTION 906 CERTIFICATION
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Morgan Stanley Insured Municipal Income Trust
In connection with the Report on Form N-CSR (the "Report") of the
above-named issuer for the period ended April 30, 2003 that is accompanied by
this certification, the undersigned hereby certifies that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Issuer.
Date: June 20, 2003 Francis Smith
Principal Financial Officer
A signed original of this written statement required by Section 906 has been
provided to Morgan Stanley Insured Municipal Income Trust and will be retained
by Morgan Stanley Insured Municipal Income Trust and furnished to the Securities
and Exchange Commission or its staff upon request.
8