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: 811-07528
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INSURED MUNICIPAL INCOME FUND INC.
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
51 West 52nd Street, New York, New York 10019-6114
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(Address of principal executive offices) (Zip code)
Amy R. Doberman, Esq.
UBS Global Asset Management (US) Inc.
51 West 52nd Street
New York, NY 10019-6114
(Name and address of agent for service)
Copy to:
Jack W. Murphy, Esq.
Dechert
1775 Eye Street, N.W.
Washington, DC 20006-2401
Registrant's telephone number, including area code: 212-882 5000
Date of fiscal year end: March 31, 2003
Date of reporting period: March 31, 2003
ITEM 1. REPORTS TO STOCKHOLDERS.
[UBS GLOBAL ASSET MANAGEMENT LOGO]
Insured Municipal Income Fund Inc.
Annual Report
March 31, 2003
Insured Municipal Income Fund Inc.
May 15, 2003
DEAR SHAREHOLDER,
We present you with the annual report for Insured Municipal Income Fund Inc. for
the fiscal year ended March 31, 2003.
AN INTERVIEW WITH PORTFOLIO MANAGER WILLIAM VERONDA
Q. HOW DID THE FUND PERFORM DURING THE PERIOD RELATIVE TO ITS PEERS?
A. For the fiscal year ended March 31, 2003, the Fund's net asset value
advanced 10.45%, while its market price increased 10.61%, underperforming its
competitors as measured by the Lipper Insured Municipal Debt Funds (Leveraged)
Median. For comparison purposes, the Lipper Median's net asset value and market
price grew 12.69% and 14.19%, respectively. The Fund lagged its benchmark
primarily due to its shorter average duration compared to its peers. (For more
performance information, please refer to "Performance At A Glance" on page 5).
Q. CAN YOU DESCRIBE THE ECONOMIC ENVIRONMENT DURING THE PERIOD?
A. The economy didn't move in any clear direction over the period. Initially,
it appeared to be on the path to recovery. Newly reported gross domestic product
(GDP) for the first quarter of 2002 came in at a strong 5.0%. Second quarter GDP
told a very different story, however, as ongoing threats of terrorism, turmoil
in the Middle East, falling corporate spending, a weak stock market, and
corporate accounting scandals took their toll. The final figure came in at a
tepid 1.3%. Although the news improved somewhat during the third quarter--GDP
rose to 4.0%--hopes for economic recovery dimmed when fourth quarter GDP came in
at 1.4%.
By the time the review period wound down in March, little about this economic
picture had changed. Fears concerning a potential war with Iraq were replaced by
fears over the longevity and cost of the war after it began. It was also clear
that other factors, including the heightened threat of terrorism and
saber-rattling in North Korea, continued to weigh heavily on the forces driving
economic growth. This was ultimately reflected in the advance GDP figure for
first quarter 2003, which came in at 1.6%.
----------------------------------
INSURED MUNICIPAL INCOME FUND INC.
INVESTMENT GOAL:
High level of current income
exempt from federal income tax,
consistent with preservation
of capital.
PORTFOLIO MANAGER:
William Veronda,
UBS Global Asset
Management (US) Inc.
COMMENCEMENT:
June 8, 1993
NYSESYMBOL:
PIF
DIVIDEND PAYMENTS:
Monthly.
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1
Insured Municipal Income Fund Inc.
Q. HOW DID THE FEDERAL RESERVE BOARD (THE "FED") REACT TO THE WEAKENING
ECONOMY?
A. In November 2002, the Fed acknowledged that the economy appeared to have
hit a "soft spot." Thus, after holding interest rates steady during the first
ten months of 2002, the Fed, at its November meeting, moved to lower the federal
funds rate one half of a percentage point to 1.25%--a 41-year low. Since that
time, the Fed has held rates steady--most recently at its May 6, 2003 meeting.
Q. HOW DID THE BOND MARKET PERFORM DURING THE ONE-YEAR PERIOD?
A. The bond market performed well, although there were periods of volatility
due to uncertainty engendered by the economy and the situation in Iraq. Looking
at the period as a whole, yields fell and prices rose as investors were drawn to
the relative safety offered by fixed income securities, including municipal
bonds.
Q. DURING THE LAST SEVERAL YEARS, INTEREST RATES HAVE SUBSTANTIALLY DECLINED.
HAS THIS AFFECTED THE FUND?
A. Yes, it has. A number of issuers have chosen to call, or buy back, their
bonds before their stated maturity dates. By doing so, the issuers can then
issue new securities at today's lower rates, and thus cut their borrowing costs.
We are using the proceeds we receive from these involuntary sales to purchase
bonds offering lower coupons. Because of this trend, however, we are taking
special care to thoroughly investigate any call provisions in the bonds we are
considering for the Fund.
Q. WHILE THE FUND GENERATED STRONG ABSOLUTE RETURNS, IT LAGGED ITS BENCHMARK
DURING THE PERIOD. WHAT WAS THE PRIMARY REASON FOR THIS?
A. As we explained in our last report to shareholders, the Fund's performance
has been affected by our attempt to minimize the realization of capital gains.
This has become increasingly difficult to do, because nearly every security in
the portfolio has appreciated due to the strong performance of the municipal
market. One way to avoid capital gains is to hold on to positions in the
portfolio. However, in doing so, many of the securities in the Fund's portfolio
have "aged" to the point where they have short maturities. Given the falling
interest rate environment, the Fund's shorter duration caused it to underperform
its peers.
Another result of our focus on avoiding the realization of capital gains is that
it limits our flexibility to invest in longer-term securities that offer
compelling yield and quality characteristics. Therefore, during the period we
worked to prudently eliminate certain holdings with shorter durations in an
effort to extend the Fund's duration and enhance its portfolio. One example was
our sale of Louisville & Jefferson County Metropolitan Sewer District Sewer &
Drain System bonds
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2
Insured Municipal Income Fund Inc.
that mature in 2004. This security offered a low yield and modest capital gain,
making it an appropriate candidate to eliminate from the portfolio.
Q. WHEN PURCHASING NEW BONDS FOR THE PORTFOLIO, ARE YOU TARGETING A SPECIFIC
DURATION RANGE AND YIELD?
A. Yes, we are targeting bonds with approximately a 10-year call and a
maturity in the 15- to 20-year range. We believe these issues allow us to
maximize yield relative to market volatility. Additionally, we're looking for
bonds that offer a yield premium of 50 to 100 basis points versus what is
currently available in the marketplace (a basis point is 1/100 of a percentage
point).
It is also important to point out that we're diversifying the portfolio by
investing a portion of the portfolio in AAA-rated uninsured bonds. By
prospectus, we can invest up to 20% of the Fund's portfolio in these issues.
U.S. government securities back many of the uninsured securities we're holding
in the portfolio, and we believe they offer superior quality versus certain
insured bonds.
Q. CAN YOU SHARE SOME EXAMPLES OF SECTORS YOU'RE EMPHASIZING AND SPECIFIC
SECURITIES YOU ADDED TO THE PORTFOLIO DURING THE PERIOD?
A. We like the fundamentals offered by essential service revenue bonds,
including revenue-producing utilities, and, in particular, select electric power
revenue bonds. We're seeing a rebound in this area due to a reversal in the
deregulation that led to severe problems in states such as California.
We are also drawn to airport revenue bonds. While the airline industry is
extremely weak, we believe many airport bonds offer compelling opportunities,
since the need for airfreight and transportation is a vital component of our
economy. An example of a holding in this area is St. Louis Airport bonds.
Q. WHAT IS YOUR OUTLOOK FOR THE ECONOMY, AND HOW DO YOU ANTICIPATE POSITIONING
THE FUND'S PORTFOLIO GOING FORWARD?
A. The economy clearly failed to gain any momentum during the period, and we
believe it is likely to expand only modestly in the coming months. In terms of
interest rates, the outlook remains cloudy at best, due to the uncertainties
surrounding the impact of the war in Iraq and its effect on economic growth.
On a strategy level, the mounting state budget deficits have drawn our
attention. Numerous states have seen their budget surpluses dry up and become
substantial deficits. In fact, over 90% of the states are now experiencing
shortfalls, with a record $80 billion nationwide deficit projected for fiscal
year 2004 (which begins on July 1, 2003). In many cases, states have been
reluctant to make the necessary spending cuts or to implement tax increases
necessary to bring their budgets in line. Because of this, we will continue to
avoid state credits that do not meet our stringent quality requirements. Rather,
we intend to focus on
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3
Insured Municipal Income Fund Inc.
essential service revenue bonds and lengthening the Fund's duration to bring it
to a market-neutral position. In summary, we'll seek to add value through
careful attention to coupon, call, maturity structure and credit analysis.
Our ultimate objective in managing your investments is to help you successfully
meet your financial goals. We thank you for your continued support and welcome
any comments or questions you may have. For additional information on UBS
funds,* please contact your financial advisor, or visit us at www.ubs.com.
Sincerely,
JOSEPH A. VARNAS
PRESIDENT
Insured Municipal Income Fund Inc.
HEAD OF PRODUCT, TECHNOLOGY AND OPERATIONS
UBS Global Asset Management (US) Inc.
WILLIAM VERONDA
PORTFOLIO MANAGER
Insured Municipal Income Fund Inc.
EXECUTIVE DIRECTOR
UBS Global Asset Management (US) Inc.
This letter is intended to assist shareholders in understanding how the Fund
performed during the fiscal year ended March 31, 2003, and reflects our views at
the time of its writing. Of course, these views may change in response to
changing circumstances, and they do not guarantee the future performance of the
markets or the Fund. We encourage you to consult your financial advisor
regarding your personal investment program.
* Mutual funds are sold by prospectus only. The prospectus for a fund contains
more complete information regarding risks, charges and expenses, and should
be read carefully before investing.
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4
Insured Municipal Income Fund Inc.
PERFORMANCE AT A GLANCE
AVERAGE ANNUAL RETURNS, PERIODS ENDED 3/31/03 SINCE
NET ASSET VALUE RETURNS 6 MONTHS 1 YEAR 5 YEARS INCEPTION*
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Insured Municipal Income Fund Inc. 1.42% 10.45% 5.68% 5.90%
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Lipper Insured Municipal Debt Funds
(Leveraged) Median 1.19 12.69 6.14 6.74
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MARKET PRICE RETURNS
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Insured Municipal Income Fund Inc. (0.69)% 10.61% 6.63% 5.39%
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Lipper Insured Municipal Debt Funds
(Leveraged) Median 1.55 14.19 6.70 6.79
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* Since inception returns for the Fund are calculated from the date of the
Fund's inception on June 8, 1993. Since inception returns for the Lipper
Median are calculated from the closest month-end to the Fund's inception:
May 31, 1993.
Past performance does not predict future performance. The return and
principal value of an investment will fluctuate, so that an investor's
shares, when sold, may be worth more or less than their original cost. NAV
return assumes, for illustration only, that dividends were reinvested at the
net asset value on the ex-dividend dates. Market price return assumes
dividends were reinvested under the Dividend Reinvestment Plan. NAV and
market price returns for periods of one year or less are cumulative. Returns
do not include brokerage commissions or taxes paid on realized capital gains.
Lipper peer group data calculated by Lipper Inc.; used with permission. The
Lipper Median is the return of the fund that places in the middle of the peer
group.
SHARE PRICE, DIVIDEND AND YIELDS AS OF 3/31/03
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Market Price $13.98
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Net Asset Value (per share applicable
to common shareholders) $15.76
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12-Month Net Investment Income
Dividend (ended 3/31/03) $0.840
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March 2003 Dividend $0.070
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Market Yield* 6.01%
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NAV Yield* 5.33%
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IPO Yield* 5.60%
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* Market yield is calculated by multiplying the March dividend by 12 and
dividing by the month-end market price. NAV yield is calculated by
multiplying the March dividend by 12 and dividing by the month-end net asset
value. IPO yield is calculated by multiplying the March dividend by 12 and
dividing by the initial public offering price. Prices and yields will vary.
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5
Insured Municipal Income Fund Inc.
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PORTFOLIO STATISTICS
CHARACTERISTICS 3/31/03 9/30/02 3/31/02
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Net Assets Applicable
to Common
Shareholders (mm) $325.1 $329.3 $312.6
Weighted Average Maturity* 14.1 yrs 12.9 yrs 12.3 yrs
Weighted Average Duration* 4.4 yrs 3.2 yrs 3.9 yrs
Weighted Average Coupon* 5.4% 5.5% 5.4%
AMT Paper** 0.0% 0.0% 0.0%
Leverage** 31.1% 31.0% 32.0%
Callable/Maturing
Within Five Years* 16.6% 26.5% 30.5%
Callable/Maturing
Beyond Five Years* 83.4% 73.5% 69.5%
CREDIT QUALITY*** 3/31/03 9/30/02 3/31/02
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AAA/Aaa 142.6% 140.5% 140.3%
SP-1/MIG-1 0.0 2.8 5.8
A1/P1 3.7 0.3 0.9
Liabilities in Excess
of Other Assets (0.2) -- --
Other Assets in Excess
of Liabilities -- 2.0 1.0
Liquidation Value of
Auction Preferred Shares (46.1) (45.6) (48.0)
TOTAL 100.0% 100.0% 100.0%
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TOP TEN STATES*** 3/31/03 9/30/02 3/31/02
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Texas 28.3% Texas 27.0% Texas 27.2%
Illinois 17.9 Illinois 17.7 Pennsylvania 14.9
Pennsylvania 13.4 Pennsylvania 13.9 Illinois 13.2
Rhode Island 10.5 Rhode Island 10.2 Rhode Island 10.6
California 8.6 Indiana 6.7 Indiana 7.2
Indiana 7.4 Kentucky 5.7 Washington 6.9
North Carolina 7.0 Washington 5.2 Kentucky 6.2
Alabama 4.8 California 4.9 California 6.0
Michigan 3.9 Alabama 4.6 Alabama 4.8
Massachusetts 3.9 Michigan 4.6 Louisiana 4.7
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TOTAL 105.7% 100.5% 101.7%
TOP FIVE SECTORS*** 3/31/03 9/30/02 3/31/02
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Power 32.5% Water 28.9% Water 30.9%
Pre-refunded 20.1 Power 27.1 Power 29.0
Escrow-to-maturity 16.8 Hospital 22.7 Hospital 22.9
Water 14.6 General Obligations 14.1 Sales Tax 14.8
Hospital 9.8 Sales Tax 13.4 General Obligations 12.1
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TOTAL 93.8% 106.2% 109.7%
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* Weightings represent percentages of portfolio assets as of the dates
indicated. The Fund's portfolio is actively managed and its composition will
vary over time.
** As a percentage of total assets as of the dates indicated.
*** As a percentage of net assets applicable to common shareholders as of the
dates indicated. Credit quality ratings designated by Standard &Poor's
Ratings Group and Moody's Investor Services, Inc. Both are independent
rating agencies.
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6
Insured Municipal Income Fund Inc.
Portfolio of Investments -- March 31, 2003
PRINCIPAL MOODYS S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--142.62%
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ALABAMA--4.77%
$ 1,590 Alabama Water Pollution
Control Authority
Revolving Fund Loan-
Series A (AMBAC Insured) Aaa AAA 08/15/17 6.750% $ 1,775,871
------------------------------------------------------------------------------------------------------------------------------------
5,400 Birmingham Baptist Medical
Center-Special Care Facilities
Financing Authority Revenue-
Series A (MBIA Insured) Aaa AAA 08/15/23 5.500 5,521,716
------------------------------------------------------------------------------------------------------------------------------------
8,000 Jefferson County Sewer
Revenue-Series A
(FGIC Insured) Aaa AAA 02/01/27 5.375 8,195,040
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15,492,627
====================================================================================================================================
CALIFORNIA--8.62%
10,000 California State Department
of Water Resources
Power Supply
Revenue-Series A
(AMBAC Insured) Aaa AAA 05/01/16 5.500 11,200,000
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4,000 California State Department
of Water Resources
Water Revenue-
Series W (FSA Insured) Aaa AAA 12/01/14 5.500 4,619,440
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30 California State General
Obligation (FGIC Insured) Aaa AAA 11/01/12 7.000 33,012
------------------------------------------------------------------------------------------------------------------------------------
2,000 Long Beach Finance Authority
Lease Revenue-Aquarium
of the South Pacific
(AMBAC Insured) Aaa AAA 11/01/15 5.500 2,240,740
------------------------------------------------------------------------------------------------------------------------------------
3,000 Los Angeles University
School District-Series A
(FSA Insured) Aaa AAA 07/01/20 5.250 3,231,450
------------------------------------------------------------------------------------------------------------------------------------
2,250 Los Angeles Wastewater
System Revenue-Series A
(MBIA Insured) Aaa AAA 06/01/20 5.700 2,312,415
------------------------------------------------------------------------------------------------------------------------------------
4,000 San Francisco City & County
Airport Commission
International Airport
Second Series 27B
(FGIC Insured) Aaa AAA 05/01/15 5.250 4,379,880
------------------------------------------------------------------------------------------------------------------------------------
28,016,937
====================================================================================================================================
COLORADO--1.37%
5,000 E-470 Public Highway Authority
Revenue-Capital Appreciation
Series B (MBIA Insured) Aaa AAA 09/01/07 5.330@ 4,442,050
------------------------------------------------------------------------------------------------------------------------------------
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7
Insured Municipal Income Fund Inc.
Portfolio of Investments -- March 31, 2003
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------
DELAWARE--3.16%
$10,000 Delaware State Economic
Development
Authority Pollution
Control Revenue
Delmarva Power-Series B
(MBIA Insured) Aaa AAA 06/01/21 5.900% $10,270,100
====================================================================================================================================
DISTRICT OF COLUMBIA--1.39%
4,000 District of Columbia Hospital
Revenue-Medlantic
Healthcare-Series A
(Escrowed to Maturity)
(MBIA Insured) Aaa AAA 08/15/14 5.750 4,520,640
====================================================================================================================================
GEORGIA--1.00%
1,015 Columbus Building
Authority Lease Revenue-
Series A
(FGIC Insured) Aaa AAA 01/01/16 5.250 1,133,836
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2,000 Georgia Municipal
Electric Authority
Power Revenue-Series A
(FSA Insured) Aaa AAA 01/01/18 5.000 2,120,220
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3,254,056
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ILLINOIS--17.90%
8,000 Central Lake County
Joint Action Water Agency
Interim Water Revenue
(FGIC Insured) Aaa AAA 05/01/20 5.375 8,188,480
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8,400 Chicago O'Hare
International Airport
Revenue-Second Lien-
Series A
(MBIA Insured) Aaa AAA 01/01/15 6.375 9,224,712
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3,000 Chicago O'Hare
International Airport
Revenue-Second Lien-
Series B
(MBIA Insured) Aaa AAA 01/01/15 5.500 3,069,240
------------------------------------------------------------------------------------------------------------------------------------
1,000 Chicago Project & Refunding-
Series A (MBIA Insured) Aaa AAA 01/01/14 5.500 1,123,470
------------------------------------------------------------------------------------------------------------------------------------
9,325 Chicago Project & Refunding
Series A (AMBAC Insured) Aaa AAA 01/01/42 5.000 9,294,134
------------------------------------------------------------------------------------------------------------------------------------
4,600 Chicago Public Building
Commission-Building
Revenue-Series A
(Pre-refunded with U.S.
Government Securities
to 12/01/03 @ 102)
(MBIA Insured) Aaa AAA 12/01/18 5.750 4,834,232
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================================================================================
8
Insured Municipal Income Fund Inc.
Portfolio of Investments -- March 31, 2003
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------
ILLINOIS--(CONCLUDED)
$ 4,000 Illinois Development Finance
Authority Pollution Control
Revenue-Commonwealth
Edison Co. Project-Series D
(AMBAC Insured) Aaa AAA 03/01/15 6.750% $ 4,456,720
------------------------------------------------------------------------------------------------------------------------------------
4,500 Illinois Health Facilities
Authority Revenue-
Franciscan Sisters
Health Care-Series C
(Escrowed to Maturity)
(MBIA Insured) Aaa AAA 09/01/18 5.750 5,284,845
------------------------------------------------------------------------------------------------------------------------------------
2,000 Illinois Sales Tax Revenue-
Series 2 (FGIC Insured) Aaa AAA 06/15/16 5.500 2,303,100
------------------------------------------------------------------------------------------------------------------------------------
3,000 Kane McHenry Cook &
De Kalb Counties-United
School District No. 300
(MBIA Insured) Aaa AAA 12/01/15 5.500 3,361,680
------------------------------------------------------------------------------------------------------------------------------------
4,850 Metropolitan Pier & Exposition
Authority Illinois McCormick
Place Expansion-Series A
(MBIA Insured) Aaa AAA 06/15/42 5.250 5,004,764
------------------------------------------------------------------------------------------------------------------------------------
2,000 Regional Transportation
Authority-Series A
(Pre-refunded with U.S.
Government Securities
to 06/01/03 @ 102)
(FGIC Insured) Aaa AAA 06/01/23 5.850 2,055,800
------------------------------------------------------------------------------------------------------------------------------------
58,201,177
====================================================================================================================================
INDIANA--7.28%
2,500 Indiana Health Facilities
Finance Authority Hospital
Revenue Columbus Regional
Hospital (FSA Insured) Aaa AAA 08/15/22 5.500 2,578,575
------------------------------------------------------------------------------------------------------------------------------------
1,000 Indiana University Revenue
Student Fee-Series 0
(FGIC Insured) Aaa AAA 08/01/18 5.250 1,084,610
------------------------------------------------------------------------------------------------------------------------------------
7,835 Indianapolis Gas & Utilities
Revenue-Series A
(FGIC Insured) Aaa AAA 06/01/21 5.375 7,977,754
------------------------------------------------------------------------------------------------------------------------------------
12,000 Marion County Convention
Center and Recreational
Facilities Authority-Excise
Tax Revenue-Lease Rental-
Series A (AMBAC Insured) Aaa AAA 06/01/21 5.500 12,020,640
------------------------------------------------------------------------------------------------------------------------------------
23,661,579
====================================================================================================================================
IOWA--1.47%
4,625 Ames Hospital Revenue
Mary Greeley Medical
Center Project
(AMBAC Insured) Aaa AAA 08/15/22 5.750 4,774,619
====================================================================================================================================
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9
Insured Municipal Income Fund Inc.
Portfolio of Investments -- March 31, 2003
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------
MAINE--2.53%
$ 4,785 Maine Health & Higher
Educational Facilities
Authority Revenue-
Series A
(Escrowed to Maturity)
(FSA Insured) Aaa AAA 07/01/23 5.500% $ 4,996,545
------------------------------------------------------------------------------------------------------------------------------------
3,105 Maine Health & Higher
Educational Facilities
Authority Revenue-Series A
(FSA Insured) Aaa AAA 07/01/23 5.500 3,190,884
------------------------------------------------------------------------------------------------------------------------------------
30 Maine Health & Higher
Educational Facilities
Authority Revenue-Series B
(Pre-refunded with U.S.
Government Securities
to 07/01/04 @ 102)
(FSA Insured) Aaa AAA 07/01/24 7.000 32,767
------------------------------------------------------------------------------------------------------------------------------------
8,220,196
====================================================================================================================================
MASSACHUSETTS--2.03%
2,800 Massachusetts Water
Pollution Abatement Trust
MWRA Program-Series A Aaa AAA 08/01/20 5.250 2,995,888
------------------------------------------------------------------------------------------------------------------------------------
3,390 Massachusetts Water
Pollution Abatement Trust
Pool Program Bonds
Series-8 Aaa AAA 08/01/17 5.000 3,621,740
------------------------------------------------------------------------------------------------------------------------------------
6,617,628
====================================================================================================================================
MICHIGAN--3.90%
4,475 Eastern Michigan University
Revenue-Series A
(FGIC Insured) Aaa AAA 06/01/19 5.000 4,723,004
------------------------------------------------------------------------------------------------------------------------------------
2,880 Michigan Municipal Bond
Authority Clean Water
Revenue Fund Aaa AAA 10/01/19 5.250 3,114,893
------------------------------------------------------------------------------------------------------------------------------------
4,755 Michigan State Housing
Development Authority
Rental Housing Revenue-
Series A (AMBAC Insured) Aaa AAA 04/01/23 5.900 4,837,119
------------------------------------------------------------------------------------------------------------------------------------
12,675,016
====================================================================================================================================
MISSOURI--1.63%
4,775 St. Louis Airport Revenue
Capital Improvement
Project-Series A 07/01/15 to
(MBIA Insured) Aaa AAA 07/01/18 5.375 5,293,441
====================================================================================================================================
NEVADA--3.63%
7,500 Washoe County Gas & Water
Facilities Revenue Sierra
Pacific Power Co. Project-
Series A (MBIA Insured) Aaa AAA 06/01/23 5.900 7,702,575
------------------------------------------------------------------------------------------------------------------------------------
================================================================================
10
Insured Municipal Income Fund Inc.
Portfolio of Investments -- March 31, 2003
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------
NEVADA--(CONCLUDED)
====================================================================================================================================
$ 4,000 Washoe County Gas & Water
Facilities Revenue Sierra
Pacific Power Co. Project-
Series B (MBIA Insured) Aaa AAA 06/01/23 5.900% $ 4,108,040
------------------------------------------------------------------------------------------------------------------------------------
11,810,615
====================================================================================================================================
NEW JERSEY--1.68%
5,000 Salem County Industrial
Pollution Control Finance
Authority Revenue Public
Service Electric & Gas-
Series D (MBIA Insured) Aaa AAA 10/01/29 6.550 5,454,350
====================================================================================================================================
NEW MEXICO--2.79%
8,850 Gallup Pollution Control
Revenue-Plains Electric
Generation (MBIA Insured) Aaa AAA 08/15/17 6.650 9,064,081
====================================================================================================================================
NEW YORK--3.35%
2,920 New York State Dormitory
Authority Revenue
Columbia University-
Series A Aaa AAA 07/01/16 5.125 3,204,145
------------------------------------------------------------------------------------------------------------------------------------
2,000 Long Island Power Authority
Electric System Revenue-
Series A (FSA Insured) Aaa AAA 12/01/22 5.125 2,048,620
5,000 Metropolitan Transportation
Authority Revenue-Series A
(AMBAC Insured) Aaa AAA 11/15/16 5.500 5,623,650
------------------------------------------------------------------------------------------------------------------------------------
10,876,415
====================================================================================================================================
NORTH CAROLINA--6.96%
19,000 North Carolina Eastern
Municipal Power Agency
Power System Revenue
(AMBAC Insured) Aaa AAA 01/01/18 6.000 22,637,740
====================================================================================================================================
OHIO--0.65%
1,870 Ohio Water Development
Authority-Pollution Control
Facilities Revenue-Water
Control Loan Fund-
Water Quality Series
(MBIA Insured) Aaa AAA 06/01/13 5.500 2,100,328
====================================================================================================================================
PENNSYLVANIA--13.38%
16,435 Pennsylvania Intergovernmental
Cooperative Authority
Special Tax Revenue
(Pre-refunded with U.S.
Government Securities
to 05/15/03 @ 100)
(MBIA Insured) 06/15/15 to 5.600 to
Aaa AAA 06/15/23 5.625 16,588,167
------------------------------------------------------------------------------------------------------------------------------------
================================================================================
11
Insured Municipal Income Fund Inc.
Portfolio of Investments -- March 31, 2003
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--(CONCLUDED)
$ 6,130 North Wales Water Authority-
Series A (FGIC Insured) Aaa AAA 11/01/16 5.500% $ 6,266,699
------------------------------------------------------------------------------------------------------------------------------------
2,000 Philadelphia General 03/15/13 to
Obligation (FSA Insured) Aaa AAA 03/15/14 5.250 2,197,030
------------------------------------------------------------------------------------------------------------------------------------
3,750 Philadelphia School District-
Series A (MBIA Insured) Aaa AAA 04/01/16 5.250 4,078,537
------------------------------------------------------------------------------------------------------------------------------------
5,885 Philadelphia Water &
Wastewater Revenue
(FSA Insured) Aaa AAA 06/15/15 5.500 6,048,544
------------------------------------------------------------------------------------------------------------------------------------
8,085 Philadelphia Water &
Wastewater Revenue
(Pre-refunded with U.S.
Government Securities
to 06/15/03 @ 102)
(FSA Insured) Aaa AAA 06/15/15 5.500 8,319,708
------------------------------------------------------------------------------------------------------------------------------------
43,498,685
====================================================================================================================================
RHODE ISLAND--10.49%
14,000 Rhode Island Convention
Center Authority-Series A
(Pre-refunded with U.S.
Government Securities
to 05/15/03 @ 102)
(AMBAC Insured) Aaa AAA 05/15/27 5.750 14,359,380
------------------------------------------------------------------------------------------------------------------------------------
10,000 Rhode Island Depositors
Economic Protection Corp.
Special Obligation-Series A
(Escrowed to Maturity)
(FSA Insured) Aaa AAA 08/01/14 5.750 11,842,400
------------------------------------------------------------------------------------------------------------------------------------
7,000 Rhode Island Depositors
Economic Protection Corp.
Special Obligation-Series B
(Pre-refunded with U.S.
Government Securities
to 02/01/11 @ 100)
(MBIA Insured) Aaa AAA 08/01/21 5.250 7,883,680
------------------------------------------------------------------------------------------------------------------------------------
34,085,460
====================================================================================================================================
SOUTH CAROLINA--1.18%
2,625 Charleston County Hospital
Facilities Revenue-Bon
Secours Health System
Project (Escrowed to
Maturity) (FSA Insured) Aaa AAA 08/15/25 5.625 2,713,830
------------------------------------------------------------------------------------------------------------------------------------
1,000 Myrtle Beach Water & Sewer
Revenue System
(FGIC Insured) Aaa AAA 03/01/15 5.375 1,128,210
------------------------------------------------------------------------------------------------------------------------------------
3,842,040
====================================================================================================================================
================================================================================
12
Insured Municipal Income Fund Inc.
Portfolio of Investments -- March 31, 2003
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------
TENNESSEE--1.57%
$5,000 Sullivan County Health
Educational & Housing
Facilities Board Revenue-
Holston Valley Health
(MBIA Insured) Aaa AAA 02/15/20 5.750% $5,105,700
====================================================================================================================================
TEXAS--28.25%
7,945 Bexar Metropolitan Water
District Waterworks
System Revenue
(MBIA Insured) Aaa AAA 05/01/22 5.875 8,739,738
------------------------------------------------------------------------------------------------------------------------------------
2,120 Frisco Certificates Obligation-
Series A (FGIC Insured) Aaa AAA 02/15/14 5.250 2,324,050
------------------------------------------------------------------------------------------------------------------------------------
3,000 Harris County Toll Road
Sub-Lien (FGIC Insured) Aaa AAA 08/01/09 6.000 3,505,680
------------------------------------------------------------------------------------------------------------------------------------
6,000 Houston Water & Sewer
System Revenue-Junior
Lien-Series A (FSA Insured) Aaa AAA 12/01/15 5.500 6,704,580
------------------------------------------------------------------------------------------------------------------------------------
7,000 Houston Water & Sewer
System Revenue-Junior
Lien-Series C (FGIC Insured) Aaa AAA 12/01/22 5.250 7,242,340
------------------------------------------------------------------------------------------------------------------------------------
2,000 Jefferson County
(FGIC Insured) Aaa AAA 08/01/20 5.250 2,128,860
------------------------------------------------------------------------------------------------------------------------------------
3,620 Lower Colorado River
Authority Revenue-
Series B (FSA Insured) Aaa AAA 05/15/13 6.000 4,200,395
------------------------------------------------------------------------------------------------------------------------------------
10,000 Lubbock Health Facilities
Development Corp.-
Hospital Revenue
Methodist Hospital-Series A
(Pre-refunded with U.S.
Government Securities
to 12/01/05 @ 100)
(AMBAC Insured) Aaa AAA 12/01/22 5.900 11,147,400
------------------------------------------------------------------------------------------------------------------------------------
9,005 Matagorda County
Navigation District No. 1
Revenue-Houston Light &
Power-Series A
(AMBAC Insured) Aaa AAA 03/01/27 6.700 9,223,011
------------------------------------------------------------------------------------------------------------------------------------
13,000 San Antonio Electric &
Gas Revenue
(Escrowed to Maturity) Aaa AAA 02/01/19 5.650 15,064,790
------------------------------------------------------------------------------------------------------------------------------------
9,500 San Antonio Electric &
Gas Revenue-Capital
Appreciation-Series A
(Escrowed to Maturity)
(AMBAC Insured) Aaa AAA 02/01/05 3.280@ 9,244,925
------------------------------------------------------------------------------------------------------------------------------------
================================================================================
13
Insured Municipal Income Fund Inc.
Portfolio of Investments -- March 31, 2003
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------
TEXAS--(CONCLUDED)
$ 155 San Antonio Water Revenue
(MBIA Insured) Aaa AAA 05/15/16 6.000% $ 178,588
------------------------------------------------------------------------------------------------------------------------------------
720 San Antonio Water Revenue
(Pre-refunded with U.S.
Government Securities
to 05/15/07 @ 100)
(MBIA Insured) Aaa AAA 05/15/16 6.000 858,542
------------------------------------------------------------------------------------------------------------------------------------
6,110 Texas A&M University
Fund Refunded Aaa NR 07/01/17 5.250 6,714,279
------------------------------------------------------------------------------------------------------------------------------------
4,170 Williamson County
General Obligation
(FSA Insured) Aaa AAA 02/15/17 5.500 4,570,946
------------------------------------------------------------------------------------------------------------------------------------
91,848,124
====================================================================================================================================
UTAH--2.03%
4,085 Utah Municipal Power System
Revenue Payson Power 04/01/17 to 5.000 to
Project-Series A (FSA Insured) Aaa AAA 04/01/18 5.250 4,386,377
------------------------------------------------------------------------------------------------------------------------------------
2,055 Utah Water Finance Agency
Revenue Pooled Loan
Financing Program-Series C
(AMBAC Insured) Aaa NR 10/01/18 5.250 2,222,606
------------------------------------------------------------------------------------------------------------------------------------
6,608,983
====================================================================================================================================
WASHINGTON--3.79%
3,220 Cowlitz County School 12/01/15 to
District No. 458 Kelso Aaa NR 12/01/18 5.750 3,664,329
------------------------------------------------------------------------------------------------------------------------------------
2,175 Energy Northwest Electric
Revenue-Project No. 1-
Series A (MBIA Insured) Aaa AAA 07/01/15 5.750 2,479,370
------------------------------------------------------------------------------------------------------------------------------------
2,000 King County School
District No. 403 Renton
(FGIC Insured) Aaa AAA 12/01/14 5.250 2,203,660
3,625 Snohomish County School
District No. 015 Edmonds
(FGIC Insured) Aaa AAA 12/01/15 5.250 3,973,290
------------------------------------------------------------------------------------------------------------------------------------
12,320,649
====================================================================================================================================
WEST VIRGINIA--3.87%
10,000 Marshall County Pollution
Control Revenue-Ohio
Power Project-Series D
(MBIA Insured) Aaa AAA 04/01/22 5.900 10,235,000
------------------------------------------------------------------------------------------------------------------------------------
2,245 West Virginia Water
Development Authority
Water Development
Revenue Loan Program II-
Series A (FSA Insured) Aaa AAA 11/01/29 5.750 2,342,792
------------------------------------------------------------------------------------------------------------------------------------
12,577,792
====================================================================================================================================
================================================================================
14
Insured Municipal Income Fund Inc.
Portfolio of Investments -- March 31, 2003
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONCLUDED)
------------------------------------------------------------------------------------------------------------------------------------
WISCONSIN--1.95%
$1,500 Wisconsin State Health &
Educational Facilities
Authority Revenue-
Bellin Memorial Hospital
(AMBAC Insured) Aaa AAA 02/15/19 5.500% $ 1,533,810
------------------------------------------------------------------------------------------------------------------------------------
3,500 Wisconsin State Health &
Educational Facilities
Authority Revenue-Hospital
Sisters Health Services
(MBIA Insured) Aaa AAA 06/01/18 5.375 3,563,770
------------------------------------------------------------------------------------------------------------------------------------
1,105 Ladysmith-Hawkins School
District Refunding
(FGIC Insured) Aaa NR 04/01/20 5.500 1,238,351
------------------------------------------------------------------------------------------------------------------------------------
6,335,931
====================================================================================================================================
Total Long-Term Municipal Bonds (cost--$439,008,050) 463,606,959
====================================================================================================================================
SHORT-TERM MUNICIPAL NOTES--3.74%
------------------------------------------------------------------------------------------------------------------------------------
INDIANA--0.09%
300 Princeton Pollution Control
Revenue Refunding-
PSI Energy, Inc. Project VMIG-1 NR 04/01/03 1.150* 300,000
====================================================================================================================================
KENTUCKY--0.03%
100 Breckinridge County
Lease Program Revenue-
Kentucky Association
Counties Leasing Trust-
Series A VMIG-1 NR 04/01/03 1.200* 100,000
====================================================================================================================================
MASSACHUSETTS--1.86%
6,050 Massachusetts Water
Resources Authority-
Refunding General Multi-
Modal-SubSeries C VMIG-1 A-1+ 04/01/03 1.150* 6,050,000
====================================================================================================================================
================================================================================
15
Insured Municipal Income Fund Inc.
Portfolio of Investments -- March 31, 2003
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATE RATE VALUE
------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL NOTES--(CONCLUDED)
------------------------------------------------------------------------------------------------------------------------------------
VIRGINIA--1.76%
$ 5,700 Loudoun County Industrial
Developmental Authority
Revenue-Howard Hughes
Medical-Series C VMIG-1 A-1+ 04/01/03 1.150%* $ 5,700,000
====================================================================================================================================
Total Short-Term Municipal Notes (cost--$12,150,000) 12,150,000
------------------------------------------------------------------------------------------------------------------------------------
Total Investments (cost--$451,158,050)--146.36% 475,756,959
------------------------------------------------------------------------------------------------------------------------------------
Liabilities in excess of other assets--(0.21)% (696,841)
------------------------------------------------------------------------------------------------------------------------------------
Liquidation Value of Auction Preferred Shares--(46.15)% (150,000,000)
------------------------------------------------------------------------------------------------------------------------------------
Net Assets applicable to common shareholders--100.00% $325,060,118
====================================================================================================================================
* Variable rate demand notes are payable on demand. The maturity dates shown
are the next interest rate reset dates. The interest rates shown are the
current rates as of March 31, 2003.
@ Interest rates shown reflect yield to maturity at purchase date for zero
coupon bonds.
NR -- Not Rated
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Investors Assurance
See accompanying notes to financial statements
================================================================================
16
Insured Municipal Income Fund Inc.
Statement of Assets and Liabilities -- March 31, 2003
ASSETS:
Investments in securities, at value (cost-$451,158,050) $ 475,756,959
--------------------------------------------------------------------------------
Cash 16,408
--------------------------------------------------------------------------------
Interest receivable 6,645,274
--------------------------------------------------------------------------------
Other assets 8,016
--------------------------------------------------------------------------------
Total assets 482,426,657
--------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 6,667,762
-------------------------------------------------------------------------------
Payable to investment advisor and administrator 313,848
--------------------------------------------------------------------------------
Dividends payable to auction preferred shareholders 64,951
--------------------------------------------------------------------------------
Accrued expenses and other liabilities 319,978
--------------------------------------------------------------------------------
Total liabilities 7,366,539
--------------------------------------------------------------------------------
Auction Preferred Shares Series A, B, C & D--3,000 non-
participating shares authorized, issued and outstanding;
$0.001 par value; $50,000 liquidation value per share 150,000,000
--------------------------------------------------------------------------------
Net assets applicable to common shareholders 325,060,118
--------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Common Stock-$0.001 par value; 199,997,000 shares authorized;
20,628,363 shares issued and outstanding 302,699,678
-------------------------------------------------------------------------------
Undistributed net investment income 3,342,323
--------------------------------------------------------------------------------
Accumulated net realized loss from investment transactions (5,580,792)
--------------------------------------------------------------------------------
Net unrealized appreciation of investments 24,598,909
--------------------------------------------------------------------------------
Net assets applicable to common shareholders $ 325,060,118
--------------------------------------------------------------------------------
Net asset value per common share ($325,060,118
applicable to 20,628,363 common shares outstanding) $ 15.76
--------------------------------------------------------------------------------
See accompanying notes to financial statements
================================================================================
17
Insured Municipal Income Fund Inc.
Statement of Operations
For the Year
Ended
March 31,
2003
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $24,634,384
--------------------------------------------------------------------------------
EXPENSES:
Investment advisory and administration fees 4,251,755
--------------------------------------------------------------------------------
Auction Preferred Shares expenses 441,187
--------------------------------------------------------------------------------
Custody and accounting 282,450
--------------------------------------------------------------------------------
Professional fees 54,961
--------------------------------------------------------------------------------
Reports and notices to shareholders 53,998
--------------------------------------------------------------------------------
Transfer agency fees 22,292
--------------------------------------------------------------------------------
Directors' fees 7,617
--------------------------------------------------------------------------------
Other expenses 30,079
--------------------------------------------------------------------------------
5,144,339
--------------------------------------------------------------------------------
Less: Fee waivers from investment advisor and administrator (590,524)
--------------------------------------------------------------------------------
Net expenses 4,553,815
--------------------------------------------------------------------------------
Net investment income 20,080,569
================================================================================
REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES:
Net realized gains from investment transactions 6,118,115
--------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation
of investments 5,616,365
--------------------------------------------------------------------------------
Net realized and unrealized gains from investment activities 11,734,480
--------------------------------------------------------------------------------
Dividends to auction preferred shareholders from net
investment income (1,978,974)
--------------------------------------------------------------------------------
Net increase in net assets applicable to common shareholders
resulting from operations $29,836,075
================================================================================
See accompanying notes to financial statements
================================================================================
18
Insured Municipal Income Fund Inc.
Statement of Changes in Net Assets Applicable to
Common Shareholders
For the Years Ended
March 31,
--------------------------------------------------------------------------------
2003 2002
--------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 20,080,569 $ 20,805,391
--------------------------------------------------------------------------------
Net realized gains from investment transactions 6,118,115 2,513,664
--------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation
of investments 5,616,365 (7,763,702)
--------------------------------------------------------------------------------
Dividends to auction preferred shareholders
from net investment income (1,978,974) (3,512,387)
--------------------------------------------------------------------------------
Net increase in net assets applicable to common
shareholders resulting from operations 29,836,075 12,042,966
--------------------------------------------------------------------------------
DIVIDENDS TO COMMON SHAREHOLDERS FROM:
Net investment income (17,327,825) (15,058,705)
-------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to common shareholders 12,508,250 (3,015,739)
--------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of year 312,551,868 315,567,607
-------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $3,342,323 and
$2,641,923, respectively) $325,060,118 $312,551,868
--------------------------------------------------------------------------------
See accompanying notes to financial statements
================================================================================
19
Insured Municipal Income Fund Inc.
Notes to Financial Statements
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Insured Municipal Income Fund Inc. (the "Fund") was incorporated in Maryland on
February 18, 1993, and is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940, as amended, as a closed-end
diversified management investment company. The Fund's investment objective is to
achieve a high level of current income that is exempt from federal income tax,
consistent with the preservation of capital.
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires the Fund's management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates. The
following is a summary of significant accounting policies:
VALUATION OF INVESTMENTS--The Fund calculates its net asset value based on the
current market value, where available, for its portfolio securities. The Fund
normally obtains market values for its securities from independent pricing
sources and broker-dealers. Independent pricing sources may use reported last
sale prices, current market quotations or valuations from computerized "matrix"
systems that derive values based on comparable securities. If a market value is
not available from an independent pricing source for a particular security, that
security is valued at fair value as determined in good faith by or under the
direction of the Fund's Board of Directors (the "Board"). The amortized cost
method of valuation, which approximates market value, generally is used to value
short-term debt instruments with sixty days or less remaining to maturity,
unless the Board determines that this does not represent fair value.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income is
recorded on an accrual basis. Discounts are accreted and premiums are amortized
as adjustments to interest income and the identified cost of investments.
DIVIDENDS AND DISTRIBUTIONS--The Fund intends to pay monthly dividends to common
shareholders at a level rate that over time will result in the distribution of
all of the Fund's net investment income remaining after the payment of dividends
on any outstanding auction preferred shares. The dividend rate on the common
stock is adjusted as necessary to reflect the performance of the Fund. Dividends
and distributions to common shareholders are recorded on the ex-dividend date.
Dividends to auction preferred shareholders are accrued daily. The amount of
dividends from net investment income and distributions from net realized capital
gains is determined in accordance with federal income tax regulations, which may
differ from accounting principles generally accepted in the United States. 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
================================================================================
20
Insured Municipal Income Fund Inc.
Notes to Financial Statements
accounts based on their federal tax-basis treatment; temporary differences do
not require reclassification.
CONCENTRATION OF RISK
The Fund follows an investment policy of investing primarily in municipal
obligations of various states. Economic changes affecting those states and
certain of their public bodies and municipalities may affect the ability of the
issuers within those states to pay interest on, or repay principal of, municipal
obligations held by the Fund.
INVESTMENT ADVISOR AND ADMINISTRATOR
The Board has approved an investment advisory and administration contract
("Advisory Contract") with UBS Global Asset Management (US) Inc. ("UBS Global
AM") under which UBS Global AM serves as investment advisor and administrator of
the Fund. UBS Global AM is an indirect wholly owned asset management subsidiary
of UBS AG, an internationally diversified organization with headquarters in
Zurich, Switzerland and operations in many areas of the financial services
industry. In accordance with the Advisory Contract, the Fund pays UBS Global AM
an investment advisory and administration fee, which is accrued weekly and paid
monthly, at the annual rate of 0.90% of the Fund's average weekly net assets. At
March 31, 2003, the Fund owed UBS Global AM $313,848, representing $364,468 for
investment advisory and administration fees less fee waivers of $50,620. For the
year ended March 31, 2003, UBS Global AM voluntarily waived $590,524 in
investment advisory and administration fees from the Fund.
COMMON STOCK
There are 199,997,000 shares of $0.001 par value common stock authorized and
20,628,363 common shares outstanding at March 31, 2003.
AUCTION PREFERRED SHARES
The Fund has issued 800 shares of Auction Preferred Shares Series A, 800 shares
of Auction Preferred Shares Series B, 800 shares of Auction Preferred Shares
Series C and 600 shares of Auction Preferred Shares Series D, which are referred
to herein collectively as the "APS." All shares of each series of APS have a
liquidation preference of $50,000 per share plus an amount equal to accumulated
but unpaid dividends upon liquidation.
Dividends, which are cumulative, are generally reset every 7 days for APS Series
A, 28 days for APS Series B, 90 days for APS Series C and 7 days for APS Series
D. Dividend rates ranged from 0.90% to 1.85% for the year ended March 31, 2003.
The Fund is subject to certain restrictions relating to the APS. Failure to
comply with these restrictions could preclude the Fund from declaring any
distributions to common shareholders or repurchasing common shares and/or could
trigger the mandatory redemption of APS at liquidation value.
================================================================================
21
Insured Municipal Income Fund Inc.
Notes to Financial Statements
The APS are entitled to one vote per share and, unless otherwise required by
law, will vote with holders of common stock as a single class, except that the
auction preferred shares will vote separately as a class on certain matters, as
required by law. The holders of the auction preferred shares have the right to
elect two directors of the Fund.
The redemption of the Fund's auction preferred shares is outside of the control
of the Fund because it is redeemable upon the occurrence of an event that is not
solely within the control of the Fund.
FEDERAL TAX STATUS
For federal income tax purposes, at March 31, 2003, the components of net
unrealized appreciation of investments were as follows:
Gross appreciation (from investments having
an excess value over cost) .................................... $ 25,002,282
Gross depreciation (from investments having
an excess of cost over value) ................................. (6,926,195)
------------
Net unrealized appreciation of investments ...................... $ 18,076,087
============
For the year ended March 31, 2003, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $121,668,337 and
$108,707,008, respectively.
The Fund intends to distribute substantially all of its tax-exempt income and
any taxable income and to comply with the other requirements of the Internal
Revenue Code applicable to regulated investment companies. Accordingly, no
provision for federal income taxes is required. In addition, by distributing
during each calendar year substantially all of its net investment income,
realized capital gains and certain other amounts, if any, the Fund intends not
to be subject to a federal excise tax.
The tax character of distributions paid during the fiscal years ended March 31,
2003 and March 31, 2002 were as follows:
Distributions paid from: 2003 2002
----------- -----------
Tax-exempt income .................................... $19,306,799 $18,703,218
----------- -----------
At March 31, 2003, the components of accumulated earnings on a tax basis were as
follows:
Undistributed tax-exempt income ...................... $ 2,782,917
Undistributed long-term capital gains ................ 1,566,387
-----------
Accumulated earnings ................................. 4,349,304
Net unrealized appreciation of investments ........... 18,076,087
-----------
Total accumulated earnings ........................... $22,425,391
===========
================================================================================
22
Insured Municipal Income Fund Inc.
Notes to Financial Statements
The differences between book-basis and tax-basis net unrealized appreciation of
investments is attributable to the realization for tax purposes of unrealized
gains/losses on certain securities that were marked-to-market.
To reflect reclassifications arising from permanent "book/tax" differences for
the year ended March 31, 2003, the Fund's undistributed net investment income
was decreased by $73,370 and accumulated net realized loss was decreased by
$73,370.
================================================================================
23
Insured Municipal Income Fund Inc.
Financial Highlights
Selected data for a share of common stock outstanding throughout each year is
presented below:
FOR THE YEARS ENDED MARCH 31,
------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $15.15 $15.30 $14.54 $15.58 $15.40
----------------------------------------------------------------------------------------------------------------------
Net investment income 0.97 1.01 1.04 1.04 1.02
----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
from investment transactions 0.58 (0.26) 0.79 (1.05) 0.18
----------------------------------------------------------------------------------------------------------------------
Common share equivalent of dividends
paid to auction preferred shareholders
from net investment income (0.10) (0.17) (0.31) (0.26) (0.25)
----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from operations
applicable to common shareholders 1.45 0.58 1.52 (0.27) 0.95
----------------------------------------------------------------------------------------------------------------------
Dividends paid to common shareholders
from net investment income (0.84) (0.73) (0.76) (0.77) (0.77)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $15.76 $15.15 $15.30 $14.54 $15.58
----------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF YEAR $13.98 $13.42 $13.11 $12.00 $14.25
----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN(1) 10.61% 8.04% 16.02% (10.49)% 10.96%
----------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS
ATTRIBUTABLE TO COMMON SHARES:
----------------------------------------------------------------------------------------------------------------------
Total expenses, net of waivers
from advisor 1.41% 1.42% 1.44% 1.44% 1.46%
----------------------------------------------------------------------------------------------------------------------
Total expenses, before waivers
from advisor 1.60% 1.61% 1.63% 1.63% 1.65%
----------------------------------------------------------------------------------------------------------------------
Net investment income before
auction preferred shares dividends 6.23% 6.57% 7.00% 7.05% 6.58%
----------------------------------------------------------------------------------------------------------------------
Auction preferred shares dividends 0.61% 1.11% 2.10% 1.75% 1.60%
----------------------------------------------------------------------------------------------------------------------
Net investment income available to
common shareholders, net of
waivers from advisor 5.62% 5.46% 4.90% 5.30% 4.98%
----------------------------------------------------------------------------------------------------------------------
Net investment income available to
common shareholders, before
waivers from advisor 5.43% 5.27% 4.71% 5.11% 4.79%
----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
----------------------------------------------------------------------------------------------------------------------
Net assets applicable to common
shareholders, end of year (000's) $325,060 $312,552 $315,568 $299,876 $321,361
----------------------------------------------------------------------------------------------------------------------
Portfolio turnover 24% 14% 2% 8% 5%
----------------------------------------------------------------------------------------------------------------------
Asset coverage per share of auction
preferred shares, end of year $158,353 $154,184 $155,189 $149,959 $157,120
======================================================================================================================
(1) Total investment return is calculated assuming a $10,000 purchase of common
stock at the current market price on the first day of each year reported
and a sale at the current market price on the last day of each year
reported, and assuming reinvestment of dividends and other distributions to
common shareholders at prices obtained under the Fund's Dividend
Reinvestment Plan. Total investment return does not reflect brokerage
commissions. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions.
================================================================================
24
Insured Municipal Income Fund Inc.
Report of Ernst & Young LLP, Independent Auditors
To the Board of Directors and Shareholders
Insured Municipal Income Fund Inc.
We have audited the accompanying statement of assets and liabilities of Insured
Municipal Income Fund Inc. (the "Fund"), including the portfolio of investments,
as of March 31, 2003, and the related statement of operations for the year then
ended, the statements of changes in net assets applicable to common shareholders
for each of the two years in the period then ended, and the financial highlights
for each of the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of investments owned as of March 31, 2003, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Insured Municipal Income Fund Inc. at March 31, 2003, the results of its
operations for the year then ended, the changes in its net assets applicable to
common shareholders for each of the two years in the period then ended, and the
financial highlights for each of the indicated periods, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
May 5, 2003
================================================================================
25
Insured Municipal Income Fund Inc.
GENERAL INFORMATION (UNAUDITED)
THE FUND
Insured Municipal Income Fund Inc. (the "Fund") is a diversified, closed-end
management investment company whose shares trade on the New YorkStock Exchange
("NYSE").The Fund's investment objective is to achieve a high level of current
income that is exempt from federal income tax, consistent with the preservation
of capital. The Fund's investment advisor and administrator is UBS Global Asset
Management (US) Inc. ("UBS Global AM"), an indirect wholly owned asset
management subsidiary of UBS AG, which has over $73.0 billion in assets under
management as of April 30, 2003.
SHAREHOLDER INFORMATION
The Fund's NYSE trading symbol is "PIF." Comparative net asset value and market
price information about the Fund is published weekly in THE WALLSTREET JOURNAL,
THE NEW YORK TIMES and BARRON'S, as well as in numerous other publications.
DIVIDEND REINVESTMENT PLAN
The Fund's Board has established a Dividend Reinvestment Plan (the "Plan") under
which all common shareholders whose shares are registered in their own names, or
in the name of UBS PaineWebber Inc. or its nominee, will have all dividends and
other distributions on their shares of common stock automatically reinvested in
additional shares of common stock, unless such common shareholders elect to
receive cash.Common shareholders who elect to hold their shares in the name of
another broker or nominee should contact such broker or nominee to determine
whether, or how, they may participate in the Plan.The ability of such
shareholders to participate in the Plan may change if their shares are
transferred into the name of another broker or nominee.
A common shareholder may elect not to participate in the Plan or may terminate
participation in the Plan at any time without penalty, and common shareholders
who have previously terminated participation in the Plan may rejoin it at any
time. Changes in elections must be made in writing to the Fund's transfer agent
and should include the shareholder's name and address as they appear on the
share certificate or in the transfer agent's records. An election to terminate
participation in the Plan, until such election is changed, will be deemed an
election by a common shareholder to take all subsequent distributions in cash.
An election will be effective only for distributions declared and having a
record date at least ten days after the date on which the election is received.
Additional shares of common stock acquired under the Plan will be purchased in
the open market, on the NYSE or otherwise, at prices that may be higher or lower
than the net asset value per share of the common stock at the time of the
purchase. The number of shares of common stock purchased with each dividend will
be equal to
================================================================================
26
Insured Municipal Income Fund Inc.
GENERAL INFORMATION (UNAUDITED) (CONTINUED)
DIVIDEND REINVESTMENT PLAN (CONCLUDED)
the result obtained by dividing the amount of the dividend payable to a
particular shareholder by the average price per share (including applicable
brokerage commissions) that the transfer agent was able to obtain in the open
market. The Fund will not issue any new shares of common stock in connection
with the Plan. There currently is no charge to participants for reinvesting
dividends or other distributions. The transfer agent's fees for handling the
reinvestment of distributions will be paid by the Fund. However, each
participant pays a pro rata share of brokerage commissions incurred with respect
to the transfer agent's open market purchases of common stock in connection with
the reinvestment of distributions. The automatic reinvestment of dividends and
other distributions in shares of common stock does not relieve participants of
any income tax that may be payable on such distributions.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan with respect to any
dividend or other distribution if notice of the change is sent to Plan
participants at least 30 days before the record date for such distribution. The
Plan also may be amended or terminated by the transfer agent by at least 30
days' written notice to all Plan participants. Additional information regarding
the Plan may be obtained from, and all correspondence concerning the Plan should
be directed to, the transfer agent at PFPC Inc., P.O. Box 43027, Providence,
Rhode Island 02940-3027. For further information regarding the Plan, you may
also contact the transfer agent directly at 1-800-331-1710.
================================================================================
27
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
BOARD OF DIRECTORS & OFFICERS
The Fund is governed by a Board of Directors which oversees the Fund's
operations. Each Director serves until the next annual meeting of shareholders
or until his or her sucessor is elected and qualified or until he or she resigns
or is otherwise removed. Officers are appointed by the Directors and serve at
the pleasure of the Board. The table below shows, for each Director and Officer,
his or her name, address and age, the position held with the Fund, the length of
time served as a Director and Officer of the Fund, the Director's or Officer's
principal occupations during the last five years, the number of funds in the UBS
fund complex overseen by the Director or for which a person served as an
Officer, and other directorships held by the Director.
INTERESTED DIRECTORS
Term of
Office+ and
Position(s) Length of
Name, Address, Held with Time Principal Occupation(s)
and Age Fund Served During Past 5 Years
------------------------------------------------------------------------------------------------------------------------------------
Margo N. Alexander*++; 56 Director Since 1995 Mrs. Alexander is retired. She was an executive vice
president of UBS PaineWebber (March 1984 to December
2002). She was chief executive officer of UBS Global
AM from January 1995 to October 2000, a director
(from January 1995 to September 2001) and chairman
(from March 1999 to September 2001).
E. Garrett Bewkes, Jr.*++; Director Since 1993 Mr. Bewkes serves as a consultant to UBS PaineWebber
76 and (since May 1999). Prior to November 2000, he was a
Chairman Director of Paine Webber Group Inc. ("PW Group,"
of the formerly the holding company of UBS PaineWebber and
Board of UBS Global AM) and prior to 1996, he was a
Directors consultant to PW Group. Prior to 1988, he was
chairman of the board, president and chief executive
officer of American Bakeries Company.
================================================================================
28
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
Number of
Portfolios in Fund Complex Other Directorships
Overseen by Director Held by Director
--------------------------------------------------------------------------------
Mrs. Alexander is a director or trustee None
of 19 investment companies (consisting
of 40 portfolios) for which UBS Global
AM or one of its affiliates serves as
investment advisor, sub-advisor or
manager.
Mr. Bewkes is a director or trustee of Mr. Bewkes is also a director of
33 investment companies (consisting of Interstate Bakeries Corporation.
54 portfolios) for which UBS Global AM
or one of its affiliates serves as
investment advisor, sub-advisor or
manager.
================================================================================
29
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
INDEPENDENT DIRECTORS
Term of
Office+ and
Position(s) Length of
Name, Address, Held with Time Principal Occupation(s)
and Age Fund Served During Past 5 Years
------------------------------------------------------------------------------------------------------------------------------------
Richard Q. Armstrong; 67 Director Since 1995 Mr. Armstrong is chairman and principal of R.Q.A.
R.Q.A. Enterprises Enterprises (management consulting firm) (since
One Old Church Road - April 1991 and principal occupation since March
Unit # 6 1995). Mr. Armstrong was chairman of the board,
Greenwich, CT 06830 chief executive officer and co-owner of Adirondack
Beverages (producer and distributor of soft drinks
and sparkling/still waters) (from October 1993 to
March 1995). He was a partner of The New England
Consulting Group (management consulting firm) (from
December 1992 to September 1993). He was managing
director of LVMH U.S. Corporation (U.S. subsidiary
of the French luxury goods conglomerate, Louis
Vuitton Moet Hennessey Corporation) (from 1987 to
1991) and chairman of its wine and spirits
subsidiary, Schieffelin & Somerset Company (from
1987 to 1991).
David J. Beaubien; 68 Director Since 2001 Mr. Beaubien is chairman of Yankee Environmental
101 Industrial Road Systems, Inc., a manufacturer of meteorological
Turners Falls, MA 01376 measuring systems. Prior to January 1991, he was
senior vice president of EG&G, Inc., a company which
makes and provides a variety of scientific and
technically oriented products and services. From
1985 to January 1995, Mr. Beaubien served as a
director or trustee on the boards of the Kidder,
Peabody & Co. Incorporated mutual funds.
================================================================================
30
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
Number of
Portfolios in Fund Complex Other Directorships
Overseen by Director Held by Director
--------------------------------------------------------------------------------
Mr. Armstrong is a director or trustee Mr. Armstrong is also a director of
of 19 investment companies (consisting AlFresh Beverages Canada, Inc. (a
of 40 portfolios) for which UBS Global Canadian beverage subsidiary of AlFresh
AM or one of its affiliates serves as Foods Inc.) (since October 2000).
investment advisor, sub-advisor or
manager.
Mr. Beaubien is a director or trustee Mr. Beaubien is also a director of IEC
of 19 investment companies (consisting Electronics, Inc., a manufacturer of
of 40 portfolios) for which UBS Global electronic assemblies.
AM or one of its affiliates serves as
investment advisor, sub-advisor or
manager.
================================================================================
31
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
INDEPENDENT DIRECTORS (CONTINUED)
Term of
Office+ and
Position(s) Length of
Name, Address, Held with Time Principal Occupation(s)
and Age Fund Served During Past 5 Years
------------------------------------------------------------------------------------------------------------------------------------
Richard R. Burt; 56 Director Since 1995 Mr. Burt is chairman of Diligence LLC (international
1275 Pennsylvania Ave., information and security firm) and IEP Advisors
N.W. (international investments and consulting firm). He
Washington, D.C. 20004 was the chief negotiator in the Strategic Arms
Reduction Talks with the former Soviet Union (from
1989 to 1991) and the U.S. Ambassador to the Federal
Republic of Germany (from 1985 to 1989). From 1991
to 1994, he served as a partner of McKinsey &
Company (management consulting firm).
Meyer Feldberg; 61 Director Since 1993 Mr. Feldberg is Dean and Professor of Management of
Columbia University the Graduate School of Business, Columbia
101 Uris Hall University. Prior to 1989, he was president of the
New York, New York Illinois Institute of Technology.
10027
George W. Gowen; 73 Director Since 1996 Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to May 1994,
New York, New York he was a partner in the law firm of Fryer, Ross &
10017 Gowen.
William W. Hewitt, Jr.**; 74 Director Since 2001 Mr. Hewitt is retired. From 1990 to January 1995,
c/o UBS Global Asset Mr. Hewitt served as a director or trustee on the
Management (US) Inc. boards of the Kidder, Peabody & Co. Incorporated
51 West 52nd Street mutual funds. From 1986 to 1988, he was an executive
New York, New York vice president and director of mutual funds,
10019-6114 insurance and trust services of Shearson Lehman
Brothers Inc. From 1976 to 1986, he was president of
Merrill Lynch Funds Distributor, Inc.
Morton L. Janklow; 72 Director Since 2001 Mr. Janklow is senior partner of Janklow & Nesbit
445 Park Avenue Associates, an international literary agency
New York, New York representing leading authors in their relationships
10022 with publishers and motion picture, television and
multi-media companies, and of counsel to the law
firm of Janklow & Ashley.
================================================================================
32
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
Number of
Portfolios in Fund Complex Other Directorships
Overseen by Director Held by Director
--------------------------------------------------------------------------------
Mr. Burt is a director or trustee of 19 Mr. Burt is also a director of
investment companies (consisting of 40 Hollinger International, Company
portfolios) for which UBS Global AM or (publishing), HCL Technologies Ltd.,
one of its affiliates serves as The Central European Fund, Inc., The
investment advisor, sub-advisor or Germany Fund, Inc., IGT, Inc. (provides
manager. technology to gaming and wagering
industry) and chairman of Weirton Steel
Corp. (makes and finishes steel
products). He is also a director or
trustee of funds in the Scudder
Dean Feldberg is a director or trustee Dean Feldberg is also a director of
of 33 investment companies (consisting Primedia Inc. (publishing), Federated
of 54 portfolios) for which UBS Global Department Stores, Inc. (operator of
AM, one of its affiliates serves as department stores), Revlon, Inc.
(cosmetics), Select Medical Inc.
(healthcare services) and SAPPI, Ltd.
(producer of paper).
Mr. Gowen is a director or trustee of None
33 investment companies (consisting of
54 portfolios) for which UBS Global AM,
one of its affiliates serves as
investment
Mr. Hewitt is a director or trustee of Mr. Hewitt is also a director or
19 investment companies (consisting of trustee of the Guardian Life Insurance
40 portfolios) for which UBS Global AM Company Mutual Funds (consisting of 19
or one of its affiliates serves as portfolios).
investment advisor, sub-advisor or
manager.
Mr. Janklow is a director or trustee of None
19 investment companies (consisting of
40 portfolios) for which UBS Global AM
or one of its affiliates serves as
investment advisor, sub-advisor or
manager.
================================================================================
33
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
INDEPENDENT DIRECTORS (CONCLUDED)
Term of
Office+ and
Position(s) Length of
Name, Address, Held with Time Principal Occupation(s)
and Age Fund Served During Past 5 Years
------------------------------------------------------------------------------------------------------------------------------------
Frederic V. Malek; 66 Director Since 1996 Mr. Malek is chairman of Thayer Capital Partners
1455 Pennsylvania Avenue, (merchant bank) and chairman of Thayer Hotel
N.W. Investors III, Thayer Hotel Investors II and Lodging
Suite 350 Opportunities Fund (hotel investment partnerships).
Washington, D.C. From January 1992 to November 1992, he was campaign
20004 manager of Bush- Quayle `92. From 1990 to 1992, he
was vice chairman and, from 1989 to 1990, he was
president of Northwest Airlines Inc. and NWA Inc.
(holding company of Northwest Airlines Inc.). Prior
to 1989, he was employed by the Marriott Corporation
(hotels, restaurants, airline catering and contract
feeding), where he most recently was an executive
vice president and president of Marriott Hotels and
Resorts.
Carl W. Schafer; 67 Director Since 1996 Mr. Schafer is president of the Atlantic Foundation
66 Witherspoon Street (charitable foundation). Prior to January 1993, he
#1100 was chairman of the Investment Advisory Committee of
Princeton, NJ 08542 the Howard Hughes Medical Institute.
William D. White; 69 Director Since 2001 Mr. White is retired. From February 1989 through
P.O. Box 199 March 1994, he was president of the National League
40 Upper Black Eddy, PA of Professional Baseball Clubs. Prior to one of its
18972 1989, he was a television sportscaster for WPIX-TV,
New York. Mr. White served on the board of directors
of Centel from 1989 to 1993 and on the board of
directors of Jefferson Banks Incorporated,
Philadelphia, PA.
================================================================================
34
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
Number of
Portfolios in Fund Complex Other Directorships
Overseen by Director Held by Director
--------------------------------------------------------------------------------
Mr. Malek is a director or trustee of Mr. Malek is also a director of Aegis
19 investment companies (consisting of Communications, Inc. (tele-services),
40 portfolios) for which UBS Global AM American Management Systems, Inc.
or one of its affiliates serves as (management consulting and computer
investment advisor, sub-advisor or related services), Automatic Data
manager. Processing, Inc. (computing services),
CB Richard Ellis, Inc. (real estat
services), Federal National Mortgage
Associat FPL Group, Inc. (electric
services),Manor Car Inc. (health care),
and Northwest Airlines In
Mr. Schafer is a director or trustee of Mr. Schafer is also a director of Labor
19 investment companies (consisting of Ready, Inc. (temporary employment),
40 portfolios) for which UBS Global AM Roadway Corp. (trucking), Guardian Life
or one of its affiliates serves as Insurance Company Mutual Funds
investment advisor, sub-advisor or (consisting of 19 portfolios), the
manager. Harding, Loevner Funds (consisting of
four portfolios), E.I.I. Realty
Securities Trust (investment company)
and Frontier Oil Corporation.
Mr. White is a director or trustee of None
19 investment companies (consisting of
portfolios) for which UBS Global AM or
affiliates serves as investment
advisor, sub-advisor or manager.
================================================================================
35
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
OFFICERS
Term of Principal Occupation(s)
Office+ and During Past 5 Years;
Position(s) Length of Number of Portfolios in
Name, Address, Held with Time Fund Complex For Which
and Age Fund Served Person Serves as Officer
------------------------------------------------------------------------------------------------------------------------------------
W. Douglas Beck*; Vice President Since 2003 Mr. Beck is an executive director and head of mutual
36 fund product management of UBS Global AM (since
2002). From March 1998 to November 2002, he held
various positions at Merrill Lynch, the most recent
being first vice president and co-manager of the
managed solutions group. Prior to March 1998, Mr.
Beck was a portfolio manager and managing director
at Raymond James & Associates. Mr. Beck is vice
president of UBS Supplementary Trust and 22
investment companies (consisting of 81 portfolios)
for which UBS Global AM or one of its affiliates
serves as investment advisor, sub-advisor or
manager.
Thomas Disbrow*; Vice President Since 2000 Mr. Disbrow is a director and a senior manager of
37 and Assistant the mutual fund finance department of UBS Global AM.
Treasurer Prior to November 1999, he was a vice president of
Zweig/Glaser Advisers. Mr. Disbrow is a vice
president and assistant treasurer of 19 investment
companies (consisting of 40 portfolios) and
assistant treasurer of one investment company
(consisting of two portfolios) for which UBS Global
AM or one of its affiliates serves as investment
advisor, sub-advisor or manager.
Amy R. Doberman*; Vice President Since 2000 Ms. Doberman is a managing director and general
41 and Secretary counsel of UBS Global AM. From December 1997 through
July 2000, she was general counsel of Aeltus
Investment Management, Inc. Prior to working at
Aeltus, Ms. Doberman was assistant chief counsel of
the SEC's Division of Investment Management. Ms.
Doberman is vice president and assistant secretary
of UBS Supplementary Trust and five investment
companies (consisting of 44 portfolios) and vice
president and secretary of 19 investment companies
(consisting of 40 portfolios) for which UBS Global
AM or one of its affiliates serves as investment
advisor, sub-advisor or manager.
================================================================================
36
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
OFFICERS (CONTINUED)
Term of Principal Occupation(s)
Office+ and During Past 5 Years;
Position(s) Length of Number of Portfolios in
Name, Address, Held with Time Fund Complex For Which
and Age Fund Served Person Serves as Officer
------------------------------------------------------------------------------------------------------------------------------------
Elbridge T. Gerry III*; 46 Vice President Since 1996 Mr. Gerry is a managing director-- fixed income of
UBS Global AM. Mr. Gerry is a vice president of six
investment companies (consisting of 11 portfolios)
for which UBS Global AM or one of its affiliates
serves as investment advisor, sub-advisor or
manager.
David M. Goldenberg*; Vice President Since 2002 Mr. Goldenberg is an executive director and deputy
36 and Assistant general counsel of UBS Global AM. From 2000 to 2002,
Secretary he was director, legal affairs at Lazard Asset
Management. Mr. Goldenberg was global director of
compliance for SSB Citi Asset Management Group from
1998 to 2000. He was associate general counsel at
Smith Barney Asset Management from 1996 to 1998.
Prior to working at Smith Barney Asset Management,
Mr. Goldenberg was branch chief and senior counsel
in the SEC's Division of Investment Management. Mr.
Goldenberg is a vice president and secretary of UBS
Supplementary Trust and of five investment companies
(consisting of 44 portfolios) and a vice president
and assistant secretary of 19 investment companies
(consisting of 40 portfolios) for which UBS Global
AM or one of its affiliates serves as investment
advisor, sub-advisor or manager.
================================================================================
37
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
OFFICERS (CONTINUED)
Term of Principal Occupation(s)
Office+ and During Past 5 Years;
Position(s) Length of Number of Portfolios in
Name, Address, Held with Time Fund Complex For Which
and Age Fund Served Person Serves as Officer
------------------------------------------------------------------------------------------------------------------------------------
Kevin J. Mahoney*; Vice President Since 1999 Mr. Mahoney is a director and a senior manager of
37 and Assistant the mutual fund finance department of UBS Global AM.
Treasurer Prior to April 1999, he was the manager of the
mutual fund internal control group of Salomon Smith
Barney. Mr. Mahoney is a vice president and
assistant treasurer of 19 investment companies
(consisting of 40 portfolios) for which UBS Global
AM or one of its affiliates serves as investment
advisor, sub-advisor or manager.
Paul H. Schubert*; 40 Vice President Since 1994 Mr. Schubert is an executive director and head of
and Treasurer the mutual fund finance department of UBS Global AM.
Mr. Schubert is treasurer and principal accounting
officer of UBS Supplementary Trust and of three
investment companies (consisting of 41 portfolios),
a vice president and treasurer of 20 investment
companies (consisting of 41 portfolios), and
treasurer and chief financial officer of one
investment company (consisting of two portfolios)
for which UBS Global AM or one of its affiliates
serves as investment advisor, sub-advisor or
manager.
================================================================================
38
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
OFFICERS (CONCLUDED)
Term of Principal Occupation(s)
Office+ and During Past 5 Years;
Position(s) Length of Number of Portfolios in
Name, Address, Held with Time Fund Complex For Which
and Age Fund Served Person Serves as Officer
------------------------------------------------------------------------------------------------------------------------------------
Joseph A. Varnas*; President Since 2003 Mr. Varnas is a managing director (since March
35 2003), chief technology officer (since March 2001)
and head of product, technology and operations of
UBS Global AM (since November 2002). From 2000 to
2001, he was manager of product development at UBS
PaineWebber Investment Management Services. Mr.
Varnas was a senior analyst in the Global Securities
Research &Economics Group at Merrill Lynch from 1995
to 1999. Mr. Varnas is president of UBS
Supplementary Trust and 23 investment companies
(consisting of 81 portfolios) for which UBS Global
AM or one of its affiliates serves as investment
advisor, sub-advisor or manager.
Keith A. Weller*; 41 Vice President Since 1995 Mr. Weller is a director and senior associate
and Assistant general counsel of UBS Global AM. Mr. Weller is a
Secretary vice president and assistant secretary of 19
investment companies (consisting of 40 portfolios)
for which UBS Global AM or one of its affiliates
serves as investment advisor, sub-advisor or
manager.
----------------
* This person's business address is 51 West 52nd Street, New York, New York
10019-6114.
** Address for mailing purposes only.
+ Each Director serves until the next annual meeting of shareholders or until
his or her successor is elected and qualified or until he or she resigns or
is otherwise removed. Officers of the Fund are appointed by the Directors and
serve at the pleasure of the Board.
++ Mrs. Alexander and Mr. Bewkes are "interested persons" of theFund as defined
in the Investment Company Act by virtue of their positions with UBS Global AM
and/or its affiliates.
================================================================================
39
DIRECTORS
E. Garrett Bewkes, Jr. George W. Gowen
CHAIRMAN William W. Hewitt, Jr.
Margo N. Alexander Morton L. Janklow
Richard Q. Armstrong Frederic V. Malek
David J. Beaubien Carl W. Schafer
Richard R. Burt William D. White
Meyer Feldberg
PRINCIPAL OFFICERS
Joseph A. Varnas Elbridge T. Gerry III
PRESIDENT VICE PRESIDENT
Amy R. Doberman W. Douglas Beck
VICE PRESIDENT AND SECRETARY VICE PRESIDENT
Paul H. Schubert
VICE PRESIDENT AND TREASURER
INVESTMENT ADVISOR AND
ADMINISTRATOR
UBS Global Asset Management (US) Inc.
51 West 52nd Street
New York, New York 10019-6114
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940 THAT FROM TIME TO TIME THE FUND MAY PURCHASE SHARES OF ITS
COMMON STOCK IN THE OPEN MARKET AT MARKET PRICES.
THIS REPORT IS SENT TO THE SHAREHOLDERS OF THE FUND FOR THEIR INFORMATION. IT IS
NOT A PROSPECTUS, CIRCULAR OR REPRESENTATION INTENDED FOR USE IN THE PURCHASE OR
SALE OF SHARES OF THE FUND OR OF ANY SECURITIES MENTIONED IN THIS REPORT.
(C) 2003 UBS GLOBAL ASSET MANAGEMENT (US) INC. ALL RIGHTS RESERVED.
[UBS LOGO]
UBS GLOBAL ASSET MANAGEMENT (US) INC.
51 West 52nd Street
New York, NY 10019-6114
ITEM 2. CODE OF ETHICS.
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEMS 5 and 6. [RESERVED BY SEC FOR FUTURE USE. ]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 8. [RESERVED BY SEC FOR FUTURE USE. ]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-2(c) under the Investment Company
Act of 1940, as amended) are effective based on their evaluation of
these controls and procedures as of a date within 90 days of the
filing date of this document.
(b) There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
ITEM 10. EXHIBITS.
(a) Form N-CSR disclosure requirement not yet effective with respect to
registrant.
(b) The certifications required by Rule 30a-2 of the Investment Company
Act of 1940, as amended, and Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002 are attached hereto.
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.
INSURED MUNICIPAL INCOME FUND INC.
By: /s/ JOSEPH A. VARNAS
--------------------
Joseph A. Varnas
President
Date: JUNE 6, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ JOSEPH A. VARNAS
--------------------
Joseph A. Varnas
President
Date: JUNE 6, 2003
By: /s/ PAUL H. SCHUBERT
--------------------
Paul H. Schubert
Treasurer
Date: JUNE 6, 2003