Morgan Stanley Insured Municipal Bond Trust (NYSE: IMC) (the "Trust") has received shareholder approval to adopt the investment policy change, as described below. This change is designed to expand the investment universe in which the Trust can invest, thereby providing the Trust's portfolio management team with important flexibility to respond to ongoing developments in the insured municipal bond market. The Trust seeks to achieve its investment objective by providing income which is exempt from federal income tax. The Trust is not changing its investment objective.
In connection with the recent instability in the marketplace, some of the insurers of municipal obligations have experienced ratings downgrades by the ratings agencies that rate such insurers' claims paying ability. This affects many funds that invest in insured municipal obligations because many of these funds (including the Trust) currently have policies that require such funds to invest 80 percent of their net assets in municipal obligations that are insured by an insurer rated "AAA" at the time of purchase. At a meeting held on December 12, 2008, the Trust's shareholders have approved the following investment policy change:
To allow the Trust to invest, under normal market conditions, at least 80 percent of the Trust's net assets in municipal obligations which are covered by insurance guaranteeing the timely payment of principal and interest thereon and that are rated at least "A" by a nationally recognized statistical rating organization ("NRSRO") or are unrated but judged to be of similar credit quality by the Trust's Investment Adviser, or covered by insurance issued by insurers rated at least "A" by a NRSRO.
The Trust's Management believes that the changed policy allows the Trust to continue to purchase higher quality insured municipal obligations, while acknowledging the changing market and economic conditions. While the market risk and the credit risk of the Trust investing in insured municipal obligations generally should be lower than the risks of a fund investing in similar municipal obligations that are uninsured, insurance does not eliminate the market risk or credit risk of the securities in the Trust's portfolio. A downgrade of an insurer would generally subject the Trust to potential market value declines and increased credit risk on the municipal obligations insured by such insurer.
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