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.
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(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)
Mark F. Kemper, Esq.
UBS Global Asset Management (US) Inc.
51 West 52nd Street
New York, NY 10019-6114
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(Name and address of agent for service)
Copy to:
Jack W. Murphy, Esq.
Dechert LLP
1775 I Street, N.W.
Washington, DC 20006-2401
Registrant's telephone number, including area code: 212-882-5000
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Date of fiscal year end: March 31
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Date of reporting period: March 31, 2005
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Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW, Washington, DC 20549-0609. The OMB has reviewed this collection of
information under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
[UBS GLOBAL ASSET MANAGEMENT LOGO]
INSURED MUNICIPAL INCOME FUND INC.
ANNUAL REPORT
MARCH 31, 2005
INSURED MUNICIPAL INCOME FUND INC.
May 26, 2005
DEAR SHAREHOLDER,
We present you with the annual report for Insured Municipal Income Fund Inc.
(the "Fund") for the fiscal year ended March 31, 2005.
Below you will find information regarding the Fund's performance and an
interview with the Fund's portfolio manager. After these sections, you will find
additional information regarding investment policy changes. These changes will
permit greater flexibility in investing a portion of the Fund's investments.
These changes do not modify the Fund's policy to invest at least 80% of its net
assets in insured municipal obligations under normal circumstances.
PERFORMANCE
Over the 12-month period, the Fund's net asset value return was 2.48%. On a
market price basis, the Fund declined 6.55%. Over the same period, the Fund's
peer group, the Lipper Insured Municipal Debt Funds (Leveraged) median's net
asset value and market price returns were 3.03% and -3.92%, respectively.
Finally, the Fund's benchmark, the Lehman Brothers U.S. Municipal Bond Index
(the "Index"), returned 2.67%. (For more performance information, please refer
to "Performance At A Glance" on page 7). As the market price for both the Fund
and the median of its peer group moved down while net asset values appreciated,
discounts widened during the period.
The Fund continued to use leverage during the period, which was 40% of total
assets as of March 31, 2005. Leverage can magnify returns on the upside and on
the downside, and the degree of leverage used can create wider dispersions of
returns within the Fund's peer group.
AN INTERVIEW WITH PORTFOLIO MANAGER WILLIAM VERONDA
Q. CAN YOU DESCRIBE THE ECONOMIC ENVIRONMENT DURING THE FISCAL YEAR?
A. The US economy faced a number of challenges during the reporting period,
including record high oil prices, rising interest rates, a mixed job market,
uncertainty surrounding the presidential election and geopolitical events.
Despite these issues, the economy proved to be surprisingly resilient.
Following a 3.3%
[SIDENOTE]
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
NYSE SYMBOL:
PIF
DIVIDEND PAYMENTS:
Monthly
1
gain in the second quarter of 2004, gross domestic product (GDP) growth was a
robust 4.0% in the third quarter and 3.8% in the fourth quarter. Preliminary
estimates for first quarter 2005 GDP growth were 3.5%
Q. HOW DID THE FED REACT TO THESE ECONOMIC CONDITIONS?
A. Given the strength of the economy, it became increasingly clear that the
Federal Reserve Board's (the "Fed") accommodative monetary policy would
change and it would begin to raise interest rates in an attempt to ward off a
potential increase in inflation. As expected, the Fed raised the federal
funds rate (or "fed funds" rate)--the rate that banks charge one another for
funds they borrow on an overnight basis--from 1.00% in June 2003 to 1.25% at
the end of June 2004. This was the first rate hike in four years.
The Fed raised rates in 0.25% increments on six more occasions over the
fiscal year, bringing the fed funds rate to 2.75% by the end of March 2005.
Toward the end of the period, the Fed appeared to become increasingly
concerned about inflation. Coinciding with the March rate hike, the Fed
continued to say it expected to raise rates at a "measured" pace. However, it
also said that inflationary pressures "have picked up in recent months and
pricing power is more evident," whereas in February it stated that inflation
was "well contained." Many market participants believed this telegraphed the
potential for rate hikes larger than 0.25% in the future. The Fed did indeed
raise rates again after the period closed, bringing the rate to 3.0%.
Q: HOW DID YOU POSITION THE FUND'S PORTFOLIO DURING THE FISCAL YEAR?
A: Given our expectation that yields would rise in concert with the Fed's
tightening cycle, the Fund's duration was shorter than the benchmark during
the fiscal year. While this led to mixed results over the period, our yield
curve positioning generally enhanced results over the reporting period. We
expected the yield curve to flatten, whereby the gap between short- and
long-term yields narrows, and so we maintained a barbell strategy for the
portfolio. In doing so, we held relative overweights in both short-term and
longer-term securities. In the second half of the fiscal year, this was
coupled with an underweight in the 2- to 8-year portion of the curve. This
positioning proved to be beneficial for results as longer-term securities
performed well and the 2- to 8-year segment of the yield curve lagged the
overall market.
During the period, we received approval from the Fund's Board of Directors to
invest up to 20% of the portfolio in non-insured municipal obligations that
are rated at least BBB by S&P or Baa by Moody's. We believe that this will
bring the Fund into closer alignment with its peer group, and expect it will
provide us with the flexibility to invest in securities that offer the
opportunity to generate incremental income. More details regarding these
changes are provided on page 6.
2
Q: COULD YOU DESCRIBE SOME NEW PURCHASES MADE FOR THE FUND OVER THE PERIOD?
A: In the fourth quarter of 2004, we added New Jersey Economic Development
Authority bonds, which have a 5.0% coupon and mature in 2009. We found this
issue, secured by the pledge of cigarette taxes in the state, to be
attractively priced. While New Jersey faces a significant deficit in 2005, we
believe the bonds are well-secured given the state's high per capita income
and diversified economy.
A good example of how we employed the barbell strategy for the portfolio was
our addition of both Sacramento Sanitation District bonds, offering a 5.0%
coupon and maturing in 2035, and San Diego California Unified School District
bonds, offering a 5.0% coupon and maturing in 2029. We found these securities
to be attractively valued, and they benefited as the yield curve flattened.
We subsequently sold these holdings, as we felt they became richly valued.
Q: WHICH AREAS DID YOU EMPHASIZE FROM A REGIONAL STANDPOINT?
A: We focused on states that we believed were exhibiting improved fiscal health
and whose municipal bonds were attractively valued. For example, throughout
the period we emphasized securities from the California tax-exempt market.
Following its financial crisis in 2003, California's fiscal situation has
seen considerable improvements. Our overweight position in California
enhanced results as the state's bonds continued to outperform the overall
market during the year. Given this appreciation, we believe California
municipal securities are now fairly valued given their underlying fundamental
risks.
Q: WHAT ARE YOUR VIEWS OF THE HEALTHCARE AND TOBACCO SECTORS?
A: Given an environment of declining government reimbursements, we were negative
on the healthcare sector in general. However, as the period progressed we
selectively purchased certain hospital bonds that we believed offered yields
that fairly compensated investors for their risks. This strategy proved
beneficial for the Fund. We continued to avoid tobacco settlement bonds, as
we maintained our negative long-term outlook for the sector. This positioning
detracted from results over the period, as these more speculative tobacco
bonds performed well.
Q: WHICH SECTORS DID YOU EMPHASIZE OVER THE FISCAL YEAR?
A: The Fund's portfolio is highly diversified and is exposed to a wide variety
of sectors. Having said that, one area that we found attractive was the
airport sector. Unlike the troubled airline industry, airports have performed
well as the economy has improved. Both business and consumer flight trends
have surpassed their pre-September 11, 2001 levels.
3
An example of a holding in this area was Metropolitan Washington (DC)
Airports Authority bonds, which offer a 5.25% coupon, mature in 2016, and are
also subject to the alternative minimum tax (AMT). Although the Fund has
always been able to invest in AMT bonds, historically it has not done so.
During the fiscal year, we informed the Board of our intention to begin
purchasing these bonds where appropriate. As with the added flexibility to
invest in BBB/Baa bonds, investing in AMT bonds also brings the Fund into
closer alignment with its peer group. This should provide us the opportunity
to invest in securities that generate additional incremental income.
Q: CAN YOU EXPLAIN HOW THE USE OF LEVERAGE CAN AFFECT THE FUND'S PORTFOLIO?
A: As of March 31, 2005, 40% of the Fund was leveraged. This means that the Fund
had "borrowed" money by issuing preferred shares. While leverage can increase
the Fund's short-term volatility, we believe it better positions us to seek
our goal of generating high current income that is exempt from federal income
tax, consistent with the preservation of capital.
Q. HOW WAS THE FUND POSITIONED AT THE END OF THE FISCAL YEAR?
A. At this point, it appears US economic growth will be sustainable, despite the
increase in oil prices. In particular, consumer spending has remained solid,
and corporate capital expenditures appear to be improving. In terms of the
Fund's portfolio, we expect to remain defensively positioned and to continue
to employ a barbell positioning structure. We will continue to look for
opportunities where individual securities appear to be structurally
mispriced, and focus on states with improving balance sheets whose bonds are
attractively valued.
4
We thank you for your continued support and welcome any comments or questions
you may have. For additional information on the family of UBS funds,* please
contact your financial advisor or visit us at www.ubs.com/globalam-us.
Sincerely,
/s/ W. Douglas Beck
W. DOUGLAS BECK, CFA
PRESIDENT
Insured Municipal Income Fund Inc.
EXECUTIVE DIRECTOR
UBS Global Asset Management (US) Inc.
/s/ William W. Veronda
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, 2005. The views and opinions in
the letter were current as of May 26, 2005. They are not guarantees of
performance or investment results and should not be taken as investment advice.
Investment decisions reflect a variety of factors, and we reserve the right to
change our views about individual securities, sectors and the markets at any
time. As a result, the views expressed should not be relied upon as a forecast
of the Fund's future investment intent.
We encourage you to consult your financial advisor regarding your personal
investment program.
* Mutual funds are sold by prospectus only. You should read it carefully and
consider a fund's investment objectives, risks, charges and expenses and
other important information contained in the prospectus before investing.
Prospectuses for most of our funds can be obtained from your financial
advisor, by calling UBS funds at 800-647 1568 or by visiting our Web site at
www.ubs.com/globalam-us.
5
INVESTMENT POLICY CHANGES
The Fund's Board of Directors has approved a change in investment policies to
permit greater investment flexibility. One of the Fund's investment policies has
permitted investment of up to 20% of its portfolio in non-insured municipal
obligations meeting certain criteria, including (i) non-insured municipal
obligations that are rated at least AAA by Standard & Poor's, a division of The
McGraw-Hill Companies, Inc. ("S&P"), Aaa by Moody's Investors Services, Inc.
("Moody's"), or have received an equivalent rating from another nationally
recognized statistical rating organization (NRSRO), and (ii) non-insured
municipal obligations that are guaranteed by an entity rated at least AAA by
S&P, Aaa by Moody's, or an equivalent rating from another NRSRO.
The Fund's Board of Directors has approved a change that will permit the Fund to
invest up to 20% of its portfolio in non-insured municipal obligations that are
rated at least BBB by S&P, Baa by Moody's, or an equivalent rating from another
NRSRO, or that are guaranteed by an entity rated at least BBB by S&P, Baa by
Moody's, or an equivalent rating from another NRSRO. The investment policy has
also been revised to provide that all non-insured municipal obligations invested
in by the Fund be rated at least BBB by S&P, Baa by Moody's, or the equivalent
rating by another NRSRO. ("AAA" or "Aaa" is considered the highest rating
category, while "BBB" or "Baa" is considered below the highest category but
still investment grade.) The revised investment policies are expected to become
effective on or after June 1, 2005. As a result, the Fund's 80% investment
policy and 20% investment policy would be revised to read as follows:
Under normal circumstances, the Fund invests at least 80% of its net assets
in Insured Municipal Obligations, the income from which is exempt from
regular federal income tax. "Insured Municipal Obligations" are Municipal
Obligations that are insured as to the timely payment of both principal and
interest by an entity, that, at the time of investment, has a claims-paying
ability rated Aaa by Moody's, AAA by S&P or an equivalent rating by another
NRSRO. The Fund may invest up to 20% of its net assets in Municipal
Obligations that are not insured but that are, at the time of investment, (1)
backed by an escrow or trust account containing sufficient US government or
US government agency securities to ensure the timely payment of principal and
interest; (2) guaranteed as to timely payment of principal and interest by an
entity which has a credit rating of Baa by Moody's, BBB by S&P or an
equivalent rating by another NRSRO; or (3) not insured, guaranteed or backed
by escrows but rated at least Baa by Moody's, BBB by S&P or an equivalent
rating by another NRSRO. The Municipal Obligations described in (1) and (2)
above may be unrated if they are determined by the investment advisor to be
of comparable quality to Municipal Obligations that have received ratings of
at least Baa by Moody's, BBB by S&P, or an equivalent rating by another
NRSRO.
6
PERFORMANCE AT A GLANCE (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED 3/31/05
NET ASSET VALUE RETURNS 6 MONTHS 1 YEAR 5 YEARS 10 YEARS
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Insured Municipal Income Fund Inc. 0.70% 2.48% 6.24% 6.63%
Lipper Insured Municipal Debt Funds
(Leveraged) median 1.53 3.03 7.92 6.65
MARKET PRICE RETURNS
Insured Municipal Income Fund Inc. (2.47) (6.55) 7.70 7.77
Lipper Insured Municipal Debt Funds
(Leveraged) median (1.65) (3.92) 8.77 7.12
Past performance does not predict future performance. The return and 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 payable
dates. NAV and market price returns for periods of less than one year are
cumulative. Returns do not reflect the deduction of taxes that a shareholder
could pay on Fund distributions.
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 3/31/05
Market Price $ 12.71
Net Asset Value (per share applicable to common shareholders) $ 14.93
12-Month Net Investment Income Dividend to Common Shareholders
(period ended 3/31/05) $ 0.76
March 2005 Dividend $ 0.055
Market Yield* 5.19%
NAV Yield* 4.42%
* 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. Prices and yields will vary.
7
PORTFOLIO STATISTICS (UNAUDITED)
CHARACTERISTICS 3/31/05 9/30/04 3/31/04
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Net Assets Applicable to
Common Shareholders (mm) $ 308.0 $ 314.7 $ 317.6
Weighted Average Maturity 11.7 yrs 11.1 yrs 10.7 yrs
Weighted Average Duration 4.3 yrs 4.8 yrs 4.8 yrs
Weighted Average Coupon 4.8% 4.7% 4.3%
Leverage** 40.1% 38.8% 39.8%
Callable/Maturing Within Five Years* 18.3% 13.8% 14.4%
Callable/Maturing Beyond Five Years* 81.7% 86.2% 85.6%
PORTFOLIO COMPOSITION*** 3/31/05 9/30/04 3/31/04
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Long-Term Municipal Bonds 144.5% 143.5% 143.8%
Short-Term Municipal Notes 23.3 21.6 20.6
Futures 0.1 (0.0)+ (0.1)
Other Assets Less Liabilities 0.3 1.6 1.8
Liquidation Value of auction
preferred shares (68.2) (66.7) (66.1)
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TOTAL 100.0% 100.0% 100.0%
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CREDIT QUALITY*** 3/31/05 9/30/04 3/31/04
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AAA 144.5% 143.5% 143.8%
A1 23.3 21.6 20.6
Futures 0.1 (0.0)+ (0.1)
Other Assets Less Liabilities 0.3 1.6 1.8
Liquidation Value of auction
preferred shares (68.2) (66.7) (66.1)
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TOTAL 100.0% 100.0% 100.0%
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TOP FIVE STATES* 3/31/05 9/30/04 3/31/04
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California 30.5% California 24.6% California 16.0%
Texas 12.4 Texas 17.3 New York 14.3
New York 10.0 New York 11.2 Texas 13.4
Illinois 8.6 Illinois 8.0 Illinois 8.7
New Mexico 6.5 Washington 6.0 Washington 7.1
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TOTAL 68.0% 67.1% 59.5%
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TOP FIVE SECTORS* 3/31/05 9/30/04 3/31/04
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Power 21.2% Power 20.3% Power 22.5%
Water & Sewer 21.2 Escrowed-to-maturity 12.2 Water & Sewer 16.1
Escrowed-to-maturity 10.3 Water & Sewer 9.5 Escrowed-to-maturity 12.1
Hospital 6.5 Hospital 8.3 Pre-refunded 9.5
Sales Tax 4.2 Airport 5.7 Hospital 7.1
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TOTAL 63.4% 56.0% 67.3%
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* Weightings represent percentages of total investments 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
Rating Group, an independent rating agency.
+ Represents less than (0.05)% of net assets applicable to common
shareholders.
8
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2005
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
----------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--144.49%
ALABAMA--0.53%
$ 1,590 Alabama Water Pollution Control
Authority Revolving Fund
Loan-Series A (AMBAC Insured) Aaa AAA 08/15/17 6.750% $ 1,615,853
CALIFORNIA--51.23%
10,000 California State Department of
Water Resources Power Supply
Revenue-Series A (AMBAC
Insured) Aaa AAA 05/01/16 5.500 11,048,800
3,060 California State Department of
Water Resources Power Supply
Revenue-Series A (MBIA
Insured) Aaa AAA 05/01/12 5.250 3,370,498
3,000 California State Department of
Water Resources Revenue-
Central Valley Project-
Series AC (MBIA Insured) Aaa AAA 12/01/27 5.000 3,118,740
4,000 California State Department of
Water Resources Revenue-
Series W (FSA Insured) Aaa AAA 12/01/14 5.500 4,525,560
2,500 California State Economic
Recovery-Series A
(FGIC Insured) Aaa AAA 07/01/14 5.250 2,765,950
8,000 California State Economic
Recovery-Series A
(MBIA Insured) Aaa AAA 07/01/12 5.000 8,719,360
3,000 California State Economic
Recovery-Series A
(MBIA Insured) Aaa AAA 07/01/15 5.000 3,234,690
30 California State General
Obligation (FGIC Insured) Aaa AAA 11/01/12 7.000 30,708
3,305 Chino Valley Unified School
District-Series A (FSA Insured) Aaa AAA 08/01/26 5.000 3,425,566
3,125 Contra Costa Water District
Revenue-Series L (FSA Insured) Aaa AAA 10/01/19 5.000 3,276,500
5,000 Contra Costa Water District
Revenue-Series M (FSA Insured) Aaa AAA 10/01/18 5.000 5,292,500
4,400 Inglewood Unified School
District-1998 Election-
Series C (FSA Insured) Aaa AAA 10/01/28 5.000 4,553,956
9
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
----------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
CALIFORNIA--(CONTINUED)
$ 3,200 Livermore-Amador Valley Water
Management Agency Sewer
Revenue-Series A (AMBAC
Insured) Aaa AAA 08/01/14 5.250% $ 3,466,880
2,000 Long Beach Finance Authority
Lease Revenue-Aquarium of
the South Pacific (AMBAC
Insured) Aaa AAA 11/01/15 5.500 2,204,880
6,340 Los Angeles County Metropolitan
Transportation Authority Sales
Tax Revenue Refunding-
Proposition C (MBIA Insured) Aaa AAA 07/01/12 5.250 7,019,014
8,475 Los Angeles County Sanitation
Districts Financing Authority
Revenue-Capital Project-
Series A (FSA Insured) Aaa AAA 10/01/20 5.000 8,944,261
3,000 Los Angeles University School
District-Series A (FSA Insured) Aaa AAA 07/01/20 5.250 3,239,220
11,625 Los Angeles Waste & Water
Systems Revenue Refunding-
Subseries A (MBIA Insured) Aaa AAA 06/01/26 5.000 12,041,989
5,000 Los Angeles Water & Power
Revenue-Power Systems-
Series A (MBIA-IBC Insured) NR AAA 07/01/24 5.000 5,149,800
7,000 Los Angeles Water & Power
Revenue-Power Systems-
Series A-A-1 (FSA Insured) Aaa AAA 07/01/21 5.250 7,451,360
3,000 Los Angeles Water & Power
Revenue-Power Systems-
Series A-Subseries A-2
(MBIA Insured) Aaa AAA 07/01/16 5.000 3,200,160
5,000 Los Angeles Water & Power
Revenue-Power Systems-
Series A-Subseries A-2
(MBIA-IBC Insured) Aaa AAA 07/01/30 5.000 5,139,100
6,000 Los Angeles Water & Power
Revenue-Power Systems-
Series B (FSA Insured) Aaa AAA 07/01/25 5.000 6,209,160
1,000 Marin Municipal Water District
Revenue (AMBAC Insured) Aaa AAA 07/01/18 5.000 1,051,470
10
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
----------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
CALIFORNIA--(CONCLUDED)
$ 5,000 Metropolitan Water District
Waterworks Revenue-
Series B-3 (MBIA Insured) Aaa AAA 10/01/29 5.000% $ 5,187,600
7,160 Oxnard Financing Authority
Waste & Water Revenue-
Redwood Trunk Sewer &
Headworks-Series A (FGIC
Insured) Aaa AAA 06/01/34 5.250 7,581,366
6,520 Placentia-Yorba Linda Unified
School District-Series A
(FGIC Insured) Aaa AAA 08/01/26 5.000 6,733,661
7,000 Sacramento Municipal Utility
Revenue-Municipal Utility
District-Series R (MBIA
Insured) Aaa AAA 08/15/19 5.000 7,405,230
4,000 San Francisco City & County
Airport Commission
International Airport-Second
Series 27B (FGIC Insured) Aaa AAA 05/01/15 5.250 4,294,280
5,580 Southern California Public
Power Authority Transmission
Project Revenue Refunding
(FGIC Insured) Aaa AAA 07/01/12 7.300# 4,202,186
3,825 Walnut Energy Center Authority
Revenue-Series A (AMBAC
Insured) Aaa AAA 01/01/34 5.000 3,914,543
----------------------------------------------------------------------------------------------------------------------
157,798,988
----------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--2.06%
4,000 District of Columbia Hospital
Revenue-Medlantic
Healthcare-Series A
(Escrowed to Maturity)
(MBIA Insured) Aaa AAA 08/15/14 5.750 4,223,440
2,000 Metropolitan Airport Authority
Systems-AMT-Series A
(MBIA Insured) Aaa AAA 10/01/16 5.250 2,125,820
----------------------------------------------------------------------------------------------------------------------
6,349,260
----------------------------------------------------------------------------------------------------------------------
FLORIDA--3.20%
6,450 Florida State Board of
Education-Public Education-
Series A (FSA Insured) Aaa AAA 06/01/27 5.000 6,667,946
11
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
----------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
FLORIDA--(CONCLUDED)
$ 3,000 Miami-Dade County Expressway
Authority Toll System
Revenue-Series B (FGIC
Insured) Aaa AAA 07/01/26 5.250% $ 3,194,190
----------------------------------------------------------------------------------------------------------------------
9,862,136
----------------------------------------------------------------------------------------------------------------------
GEORGIA--4.35%
1,015 Columbus Building Authority
Lease Revenue-Series A
(FGIC Insured) Aaa AAA 01/01/16 5.250 1,110,846
2,000 Georgia Municipal Electric
Authority Power Revenue-
Series A (FSA Insured) Aaa AAA 01/01/18 5.000 2,107,480
4,515 Georgia Municipal Electric
Authority Power Revenue-
Unrefunded-Series Y
(FSA-CR Insured) Aaa AAA 01/01/10 10.000 5,793,152
3,425 Georgia Municipal Electric
Authority Power Revenue-
Unrefunded-Series Y
(MBIA-IBC Insured) Aaa AAA 01/01/10 10.000 4,394,583
----------------------------------------------------------------------------------------------------------------------
13,406,061
----------------------------------------------------------------------------------------------------------------------
ILLINOIS--6.49%
1,500 Chicago General Obligation-
Series A (FSA Insured) Aaa AAA 01/01/25 5.000 1,549,260
2,000 Chicago General Obligation-
Series A (FSA Insured) Aaa AAA 01/01/26 5.000 2,061,320
1,000 Chicago Project & Refunding-
Series A (MBIA Insured) Aaa AAA 01/01/14 5.500 1,097,200
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 5,110,200
3,000 Kane McHenry Cook & De Kalb
Counties-United School
District No. 300 (MBIA Insured) Aaa AAA 12/01/15 5.500 3,295,860
5,000 Metropolitan Pier & Exposition
Authority-Illinois Dedicated
State Tax Capital
Appreciation-Series A-2002
(FGIC Insured) Aaa AAA 06/15/10 6.650# 4,144,850
12
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
----------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
ILLINOIS--(CONCLUDED)
$ 2,395 Metropolitan Pier & Exposition
Authority-Illinois Dedicated
State Tax-Series A-2002
(Pre-refunded with U.S.
Government Securities to
06/15/19 @ $100)
(FGIC Insured) Aaa AAA 12/15/23 5.500% $ 2,731,617
----------------------------------------------------------------------------------------------------------------------
19,990,307
----------------------------------------------------------------------------------------------------------------------
INDIANA--0.35%
1,000 Indiana University Revenue-
Student Fee-Series O
(FGIC Insured) Aaa AAA 08/01/18 5.250 1,078,690
MAINE--1.61%
4,785 Maine Health & Higher
Educational Facilities
Authority Revenue-Series A
(Escrowed to Maturity)
(FSA Insured) NR AAA 07/01/23 5.500 4,944,771
MISSOURI--1.67%
1,740 St. Louis Airport Revenue-
Capital Improvement
Project-Series A (MBIA
Insured) Aaa AAA 07/01/15 5.375 1,881,218
2,035 St. Louis Airport Revenue-
Capital Improvement
Project-Series A (MBIA Insured) Aaa AAA 07/01/16 5.375 2,198,818
1,000 St. Louis Airport Revenue-
Capital Improvement
Project-Series A (MBIA Insured) Aaa AAA 07/01/18 5.375 1,076,180
----------------------------------------------------------------------------------------------------------------------
5,156,216
----------------------------------------------------------------------------------------------------------------------
NEVADA--3.75%
4,000 Washoe County Gas & Water
Facilities Revenue-Sierra
Pacific Power Co. Project-
Series B (MBIA Insured) Aaa AAA 06/01/23 5.900 4,020,160
7,500 Washoe County Water Facilities
Revenue-Sierra Pacific Power Co.
Project-Series A (MBIA
Insured) Aaa AAA 06/01/23 5.900 7,537,800
----------------------------------------------------------------------------------------------------------------------
11,557,960
----------------------------------------------------------------------------------------------------------------------
13
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
----------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
NEW JERSEY--1.09%
$ 3,150 New Jersey Economic
Development Authority
Revenue-Cigarette Tax
(FGIC Insured) Aaa AAA 06/15/09 5.000% $ 3,346,686
NEW MEXICO--10.92%
8,850 Gallup Pollution Control
Revenue-Plains Electric
Generation (MBIA Insured) Aaa AAA 08/15/17 6.650 8,880,798
15,000 New Mexico Finance Authority
State Transportation
Revenue-Senior Lien-Series A
(MBIA Insured)+ Aaa AAA 06/15/20 5.250 16,167,450
4,130 University of New Mexico
Revenue-Hospital Meeting
(FSA-FHA Insured) Aaa AAA 01/01/23 5.000 4,246,755
4,230 University of New Mexico
Revenue-Hospital Meeting
(FSA-FHA Insured) Aaa AAA 07/01/23 5.000 4,349,582
----------------------------------------------------------------------------------------------------------------------
33,644,585
----------------------------------------------------------------------------------------------------------------------
NEW YORK--12.57%
3,000 New York State Dormitory
Authority Revenue-Series B
(FGIC Insured) Aaa AAA 11/15/29 5.250 3,266,160
3,000 New York State Dormitory
Authority Revenue-Sloan
Kettering Center-Series 1
(MBIA Insured) Aaa AAA 07/01/16 5.000 3,187,200
2,000 Long Island Power Authority
Electric System Revenue-
Series A (FSA Insured) Aaa AAA 12/01/22 5.125 2,107,040
5,650 Metropolitan Transportation
Authority Dedicated Tax
Fund-Series A (FSA Insured) Aaa AAA 11/15/24 5.250 6,015,159
5,000 Metropolitan Transportation
Authority Revenue-Series A
(AMBAC Insured) Aaa AAA 11/15/16 5.500 5,529,850
4,000 Metropolitan Transportation
Authority Revenue-Series A
(FGIC Insured) Aaa AAA 11/15/17 5.000 4,253,080
1,200 New York City General
Obligation-Series F
(MBIA-IBC Insured) Aaa AAA 08/01/12 5.750 1,351,908
14
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
----------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
NEW YORK--(CONCLUDED)
$ 11,555 Triborough Bridge & Tunnel
Authority Revenue-General
Purpose-Series Y Aa3 AAA 01/01/12 6.000% $ 13,005,384
----------------------------------------------------------------------------------------------------------------------
38,715,781
----------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA--1.22%
3,505 Charlotte Certificates of
Participation Refunding-
Convention Facilities
Project-Series A (MBIA
Insured) Aaa AAA 08/01/12 5.000 3,767,630
OHIO--2.39%
5,000 Cleveland Airport Systems
Revenue-Series A
(FSA Insured) Aaa AAA 01/01/14 5.250 5,363,000
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 2,006,996
----------------------------------------------------------------------------------------------------------------------
7,369,996
----------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA--0.70%
1,000 Philadelphia General Obligation
(FSA Insured) Aaa AAA 03/15/13 5.250 1,072,360
1,000 Philadelphia General Obligation
(FSA Insured) Aaa AAA 03/15/14 5.250 1,072,360
----------------------------------------------------------------------------------------------------------------------
2,144,720
----------------------------------------------------------------------------------------------------------------------
PUERTO RICO--1.76%
5,000 Puerto Rico Public Finance
Corp. Commonwealth
Appropriation-Series A
(Mandatory Put 02/01/12 @
$100) (FGIC Insured) Aaa AAA 08/01/31 5.250++ 5,434,950
RHODE ISLAND--6.18%
5,140 Rhode Island Depositors
Economic Protection Corp.
Special Obligation-Series A
(Escrowed to Maturity)
(FSA Insured) NR AAA 08/01/14 5.750 5,887,613
15
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
----------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
RHODE ISLAND--(CONCLUDED)
$ 4,860 Rhode Island Depositors
Economic Protection Corp.
Special Obligation-Series A
(Escrowed to Maturity)
(FSA Insured) Aaa AAA 08/01/14 5.750% $ 5,520,766
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 7,633,220
----------------------------------------------------------------------------------------------------------------------
19,041,599
----------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--2.07%
2,625 Charleston County Hospital
Facilities Revenue-Bon
Secours Health System
Project (Escrowed to Maturity)
(FSA Insured) Aaa AAA 08/15/25 5.625 2,647,234
2,500 Medical University of South
Carolina Hospital Authority
Hospital Facilities Revenue
Refunding-Series A
(MBIA-FHA Insured) Aaa AAA 02/15/25 5.250 2,634,125
1,000 Myrtle Beach Water & Sewer
Revenue System (FGIC
Insured) Aaa AAA 03/01/15 5.375 1,096,040
----------------------------------------------------------------------------------------------------------------------
6,377,399
----------------------------------------------------------------------------------------------------------------------
TEXAS--20.69%
2,000 Corpus Christi Utilities System
Revenue Refunding &
Improvement (FSA Insured) Aaa AAA 07/15/17 5.250 2,190,600
5,170 Fort Bend Independent School
District Refunding-Series A
(PSF-GTD) NR AAA 08/15/26 5.250 5,463,553
2,120 Frisco Certificates Obligation-
Series A (FGIC Insured) Aaa AAA 02/15/14 5.250 2,281,480
13,500 Houston Utility Systems
Revenue Refunding-First
Lien-Series A (FGIC Insured) Aaa AAA 05/15/23 5.250 14,333,085
16
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
----------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
TEXAS--(CONCLUDED)
$ 6,000 Houston Water & Sewer
System Revenue-Junior
Lien-Series A (FSA Insured) Aaa AAA 12/01/15 5.500% $ 6,580,620
2,000 Irving Independent School
District Refunding-Capital
Appreciation-Series A
(PSF-GTD) Aaa AAA 02/15/12 4.960# 1,506,100
2,000 Jefferson County General
Obligation (FGIC Insured) Aaa AAA 08/01/20 5.250 2,134,940
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 10,228,900
4,000 San Antonio Electric & Gas
Revenue-Unrefunded
(FSA-CR Insured) Aaa AAA 02/01/12 5.000 4,301,480
1,065 San Antonio Refunding-General
Improvement Forward-
Series 2006 (FGIC Insured)(a) Aaa AAA 08/01/12 5.250 1,128,090
1,420 San Antonio Refunding-General
Improvement Forward-
Series 2006 (FGIC Insured)(a) Aaa AAA 08/01/13 5.250 1,509,346
155 San Antonio Water Revenue
(MBIA Insured) Aaa AAA 05/15/16 6.000 164,864
720 San Antonio Water Revenue
(Pre-refunded with U.S.
Government Securities to
05/15/07 @ $100)
(MBIA Insured) Aaa AAA 05/15/16 6.000 809,374
6,110 Texas A&M University Fund
Refunded Aaa NR 07/01/17 5.250 6,579,493
4,170 Williamson County General
Obligation (FSA Insured) Aaa AAA 02/15/17 5.500 4,526,076
----------------------------------------------------------------------------------------------------------------------
63,738,001
----------------------------------------------------------------------------------------------------------------------
WASHINGTON--5.95%
5,210 Washington State Public Power
Supply Revenue Refunding-
Systems Nuclear
Project No. 2-Series A
(MBIA Insured) Aaa AAA 07/01/11 6.550# 4,107,668
17
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
----------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONCLUDED)
WASHINGTON--(CONCLUDED)
$ 2,220 Cowlitz County School
District No. 458 Kelso
(FSA Insured) Aaa NR 12/01/15 5.750% $ 2,474,501
1,000 Cowlitz County School
District No. 458 Kelso
(FSA Insured) Aaa NR 12/01/18 5.750 1,112,000
2,000 Energy Northwest Electric
Revenue-Columbia Generator
Station-Series F (MBIA Insured) Aaa AAA 07/01/18 5.000 2,099,080
2,175 Energy Northwest Electric
Revenue-Project No. 1-
Series A (MBIA Insured) Aaa AAA 07/01/15 5.750 2,421,036
2,000 King County School
District No. 403 Renton
(FGIC Insured) Aaa AAA 12/01/14 5.250 2,131,140
3,785 Spokane County Refunding-
Series B (MBIA Insured) Aaa AAA 12/01/10 5.000 3,979,360
----------------------------------------------------------------------------------------------------------------------
18,324,785
----------------------------------------------------------------------------------------------------------------------
WEST VIRGINIA--3.31%
10,000 Marshall County Pollution
Control Revenue-Ohio Power
Project-Series D (MBIA Insured) Aaa AAA 04/01/22 5.900 10,197,000
WISCONSIN--0.40%
1,105 Ladysmith-Hawkins School
District Refunding (FGIC
Insured) Aaa NR 04/01/20 5.500 1,228,451
----------------------------------------------------------------------------------------------------------------------
Total Long-Term Municipal Bonds (cost--$438,554,985) 445,091,825
----------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL NOTES--23.33%
ILLINOIS--7.96%
24,500 Chicago Water Revenue
Refunding-Second Lien
(MBIA Insured) VMIG-1 A-1+ 04/07/05 2.280* 24,500,000
KENTUCKY--0.49%
1,500 Kentucky Economic
Development Finance
Authority Hospital Facilities
Revenue-Baptist Healthcare-
Series C (MBIA Insured) VMIG-1 A-1 04/01/05 2.290* 1,500,000
18
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
----------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL NOTES--(CONTINUED)
MASSACHUSETTS--1.98%
$ 6,100 Massachusetts State Health &
Education Facilities Authority
Revenue-Capital Asset
Program-Series C (MBIA
Insured) VMIG-1 A-1+ 04/01/05 2.290%* $ 6,100,000
MISSOURI--4.94%
11,100 Missouri Development Finance
Board Cultural Facilities
Revenue-Nelson Gallery
Funding-Series B (MBIA
Insured) VMIG-1 A-1+ 04/01/05 2.300* 11,100,000
4,100 Missouri Health & Educational
Facilities Authority Health
Facilities Revenue-Cox Health
Systems (AMBAC Insured) VMIG-1 A-1+ 04/01/05 2.330* 4,100,000
----------------------------------------------------------------------------------------------------------------------
15,200,000
----------------------------------------------------------------------------------------------------------------------
NEVADA--1.36%
4,200 Clark County School District-
Series A (FSA Insured) VMIG-1 A-1+ 04/01/05 2.220* 4,200,000
----------------------------------------------------------------------------------------------------------------------
NEW YORK--4.25%
4,900 New York City General
Obligation-Series B-
Subseries B-4 (MBIA Insured) VMIG-1 A-1+ 04/01/05 2.240* 4,900,000
4,200 New York City General
Obligation-Series B2-
Subseries B-5 (MBIA
Insured) VMIG-1 A-1+ 04/01/05 2.180* 4,200,000
4,000 New York City Municipal Water
Finance Authority Water &
Sewer Systems Revenue-
Series C (FGIC Insured) VMIG-1 A-1+ 04/01/05 2.240* 4,000,000
----------------------------------------------------------------------------------------------------------------------
13,100,000
----------------------------------------------------------------------------------------------------------------------
OREGON--0.89%
2,750 Oregon State Health Housing
Educational & Cultural
Facilities Authority-
Peacehealth (MBIA Insured) VMIG-1 A-1+ 04/01/05 2.240* 2,750,000
19
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
----------------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL NOTES--(CONCLUDED)
TEXAS--0.13%
$ 400 North Central Texas Health
Facility Development Corp.
Revenue-Methodist Hospitals
Dallas-Series B (MBIA Insured) VMIG-1 A-1+ 04/01/05 2.300%* $ 400,000
WASHINGTON--1.33%
4,100 Washington State Health Care
Facilities Authority Revenue-
Providence Services-Series A
(MBIA Insured) VMIG-1 A-1+ 04/01/05 2.300* 4,100,000
----------------------------------------------------------------------------------------------------------------------
Total Short-Term Municipal Notes (cost--$71,850,000) 71,850,000
----------------------------------------------------------------------------------------------------------------------
Total Investments (cost--$510,404,985)--167.82% 516,941,825
Other assets in excess of liabilities--0.35% 1,090,753
Liquidation Value of Auction Preferred Shares--(68.17%) (210,000,000)
----------------------------------------------------------------------------------------------------------------------
Net Assets applicable to common shareholders--100.00% $ 308,032,578
----------------------------------------------------------------------------------------------------------------------
* 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, 2005.
++ Floating rate security. The interest rate shown is the current rate as of
March 31, 2005.
# Interest rates shown reflect yield to maturity at purchase date for zero
coupon bonds.
+ Entire or partial amount pledged as collateral for futures transactions.
(a) Security purchased on a when-issued basis. When issued refers to a
transaction made conditionally because a security, although authorized, has
not yet been issued.
AMBAC -- American Municipal Bond Assurance Corporation
AMT -- Alternative Minimum Tax
CR -- Custodial Receipts
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FSA -- Financial Security Assurance
GTD -- Guaranteed
IBC -- Insured Bond Certificate
MBIA -- Municipal Bond Investors Assurance
NR -- Not Rated
PSF -- Permanent School Fund
NUMBER OF IN EXPIRATION UNREALIZED
CONTRACTS CONTRACTS TO RECEIVE EXCHANGE FOR DATES APPRECIATION
------------------------------------------------------------------------------------------------
FUTURES CONTRACTS
U.S. Treasury Note
125 5 Year Futures $ 13,477,641 June 2005 $ 90,922
U.S. Treasury Note
290 10 Year Futures 31,938,751 June 2005 251,720
------------------------------------------------------------------------------------------------
$ 342,642
------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
20
INSURED MUNICIPAL INCOME FUND INC.
STATEMENT OF ASSETS AND LIABILITIES -- MARCH 31, 2005
ASSETS:
Investments in securities, at value (cost -- $510,404,985) $ 516,941,825
Cash 127,670
Receivable for interest 6,364,481
Other assets 41,933
Total assets 523,475,909
LIABILITIES:
Payable for investments purchased 4,771,898
Payable to investment advisor and administrator 266,137
Payable for variation margin 200,313
Dividends payable to auction preferred shareholders 53,040
Accrued expenses and other liabilities 151,943
Total liabilities 5,443,331
Auction Preferred Shares Series A, B, C, D, E & F-4,200
non-participating shares authorized, issued and outstanding;
$0.001 par value; $50,000 liquidation value per share 210,000,000
Net assets applicable to common shareholders $ 308,032,578
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Common Stock--$0.001 par value; 199,997,000 shares authorized;
20,628,363 shares issued and outstanding 301,976,191
Undistributed net investment income 470,621
Accumulated net realized loss from investment activities and futures (1,293,716)
Net unrealized appreciation of investments and futures 6,879,482
Net assets applicable to common shareholders $ 308,032,578
Net asset value per common share ($308,032,578 applicable to 20,628,363
common shares outstanding) $ 14.93
-------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
21
STATEMENT OF OPERATIONS
FOR THE YEAR
ENDED
MARCH 31, 2005
-------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 21,900,519
EXPENSES:
Investment advisory and administration fees 4,692,151
Auction Preferred Shares expenses 781,828
Custody and accounting 312,810
Professional fees 104,770
Reports and notices to shareholders 76,067
Transfer agency fees 19,937
Directors' fees 19,886
Other expenses 101,421
6,108,870
Less: Fee waivers by investment advisor and administrator (1,391,596)
Net expenses 4,717,274
Net investment income 17,183,245
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gains from:
Investments 1,210,590
Futures 1,076,916
Net change in unrealized appreciation/depreciation of:
Investments (9,480,409)
Futures 577,642
Net realized and unrealized loss from investment activities (6,615,261)
DIVIDENDS AND DISTRIBUTIONS TO AUCTION PREFERRED SHAREHOLDERS FROM:
Net investment income (2,812,124)
Net realized gain from investment activities (194,876)
Total dividends and distributions to auction preferred shareholders (3,007,000)
Net increase in net assets applicable to common shareholders resulting from
operations $ 7,560,984
See accompanying notes to financial statements
22
STATEMENT OF CHANGES IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
FOR THE YEARS ENDED
MARCH 31,
--------------------------------
2005 2004
------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 17,183,245 $ 17,284,000
Net realized gains from investment activites and futures 2,287,506 8,867,105
Net change in unrealized appreciation/depreciation of investments and futures (8,902,767) (8,816,660)
COMMON SHARE EQUIVALENT OF DIVIDENDS AND DISTRIBUTIONS TO AUCTION PREFERRED
SHAREHOLDERS FROM:
Net investment income (2,812,124) (1,410,363)
Net realized gains from investment activities (194,876) (335,308)
Total dividends and distributions paid to auction preferred shareholders (3,007,000) (1,745,671)
Net increase in net assets applicable to common shareholders resulting from
operations 7,560,984 15,588,774
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (15,677,560) (17,327,825)
Net realized gains from investment activities (1,419,231) (5,029,195)
Total dividends and distributions to common shareholders (17,096,791) (22,357,020)
Auction Preferred Shares offering expenses -- (723,487)
Net decrease in net assets applicable to common shareholders (9,535,807) (7,491,733)
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of year 317,568,385 325,060,118
End of year $ 308,032,578 $ 317,568,385
------------------------------------------------------------------------------------------------------------------
Accumulated undistributed net investment income $ 470,621 $ 1,619,771
------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
23
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. There can be no assurance that the
Fund's investment objective will be achieved.
In the normal course of business the Fund may enter into contracts that contain
a variety of representations or that provide indemnification for certain
liabilities. The Fund's maximum exposure under these arrangements is unknown, as
this would involve future claims that may be made against the Fund that have not
yet occurred. However, the Fund has not had prior claims or losses pursuant to
these contracts and expects the risk of loss to be remote.
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles 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 net asset values 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 last reported
sale prices, current market quotations or valuations from computerized "matrix"
systems that derive values based on comparable securities. A matrix system
incorporates parameters such as security quality, maturity and coupon, and/or
research and evaluations by its staff, including review of broker-dealer market
price quotations, if available, in determining the valuation of the portfolio
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. Securities traded in the
over-the-counter ("OTC") market are valued at the last bid price available on
the valuation date prior to valuation.
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
24
recorded on an accrual basis. Discounts are accreted and premiums are amortized
as adjustments to interest income and the identified cost of investments.
FUTURES CONTRACTS--Upon entering into a financial futures contract, the Fund is
required to deposit in a segregated account with its custodian, in the name of
the futures broker through which the transaction was effected, an amount of cash
and/or municipal obligations equal to a certain percentage of the contract
amount. This amount is known as the "initial margin". Subsequent payments, known
as "variation margin" are made or received by the Fund each day, depending on
the daily fluctuations in the value of the underlying financial futures
contracts. Such variation margin is recorded for financial statement purposes on
a daily basis as unrealized gain or loss until the financial futures contract is
closed, at which time the net gain or loss is reclassified to realized gain or
loss on futures. Variation margin calls could be substantial in the event of
adverse price movements.
Using financial futures contracts involves various market risks. If the Fund was
unable to liquidate a futures position due to the absence of a liquid secondary
market or the imposition of price limits, it could incur substantial losses. The
Fund would continue to be subject to market risk with respect to the position.
In addition, the Fund would continue to be required to make variation margin
payments and might be required to maintain the position being hedged or to
maintain cash or securities in a segregated account. Furthermore, certain
characteristics of the futures market might increase the risk that movements in
the prices of the financial futures contracts might not correlate perfectly with
movements in the prices of the investments being hedged, including temporary
price distortion.
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 earnings rate 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 U.S. generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
25
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 applicable to holders of common and auction preferred
shares. Prior to August 1, 2004, UBS Global AM had agreed to waive 0.20% of the
advisory and administration fee, so that the Fund's effective fee was 0.70% of
average weekly net assets applicable to holders of common and auction preferred
shares from July 23, 2003 until July 31, 2004. Effective August 1, 2004, the
Fund's management fee waiver increased to 0.30%, reducing the effective
management fee to 0.60%. This waiver will continue indefinitely unless the Board
agrees to any change. At March 31, 2005, the Fund owed UBS Global AM $266,137,
which is $399,018 investment advisory and administration fees less fees waived
of $132,881. For the year ended March 31, 2005, UBS Global AM waived $1,391,596
in investment advisory and administration fees from the Fund.
ADDITIONAL INFORMATION REGARDING COMPENSATION TO AFFILIATE OF A BOARD MEMBER
Effective March 1, 2005, Professor Meyer Feldberg accepted the position of
senior advisor to Morgan Stanley, resulting in his becoming an interested
director of the Fund. The Fund has been informed that Professor Feldberg's role
at Morgan Stanley does not involve matters directly affecting any UBS funds.
UBS Global AM executes Fund portfolio transactions through Morgan Stanley based
on that firm's ability to provide best execution of the transactions. During the
year ended March 31, 2005, the Fund purchased and sold certain securities (e.g.,
fixed income securities) in principal trades with Morgan Stanley having an
aggregate value of $102,776,738. Morgan Stanley received compensation for these
26
trades in the form of a "mark-up" or "mark-down" of the price of the securities.
Although the precise amount of this compensation is not generally known by UBS
Global AM, UBS Global AM believes that under normal circumstances it represents
a small portion of the total value of the transactions.
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, 600 shares of auction preferred shares Series D, 600 shares of auction
preferred shares Series E and 600 shares of auction preferred shares Series F
which are referred to herein collectively as the "APS." All shares of each
series of APS have 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 each
Series of APS. Dividend rates ranged from 0.750% to 2.600% for the year ended
March 31, 2005.
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.
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
APS will vote separately as a class on certain matters, as required by law. The
holders of the APS have the right to elect two directors of the Fund.
The redemption of the Fund's APS 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.
Offering expenses of $723,487 were charged to paid-in-capital of the Fund in
connection with the offering of APS during the year ended March 31, 2004.
PURCHASES AND SALES OF SECURITIES
For the year ended March 31, 2005, aggregate purchases and sales of portfolio
securities, excluding short-term securities, were $232,355,785 and $234,279,819,
respectively.
FEDERAL TAX STATUS
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
27
provision for federal income taxes is required. In addition, by distributing
during each calendar year substantially all of its net investment income, net
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,
2005 and March 31, 2004 were as follows:
DISTRIBUTIONS PAID FROM: 2005 2004
-----------------------------------------------------------------------------
Tax-exempt income $ 18,116,461 $ 18,738,188
Net long-term capital gains 1,987,330 5,364,503
-----------------------------------------------------------------------------
Total distributions paid $ 20,103,791 $ 24,102,691
-----------------------------------------------------------------------------
At March 31, 2005, the components of accumulated earnings on a tax basis were as
follows:
Undistributed long-term capital gains $ 1,685,468
Unrealized appreciation of investments and futures 4,423,959
-----------------------------------------------------------------------------
Total accumulated earnings $ 6,109,427
-----------------------------------------------------------------------------
The differences between book-basis and tax-basis unrealized appreciation of
investments and futures is attributable to the realization for tax purposes of
unrealized gains/losses on certain securities that were marked-to-market and
premium amortization adjustments.
For federal income tax purposes, the tax cost of investments and the components
of net unrealized appreciation of investments at March 31, 2005 were as follows:
Tax cost of investments $ 512,517,866
-----------------------------------------------------------------------------
Gross unrealized appreciation $ 6,841,871
Gross unrealized depreciation (2,417,912)
-----------------------------------------------------------------------------
Net unrealized appreciation $ 4,423,959
-----------------------------------------------------------------------------
To reflect reclassifications arising from permanent "book/tax" differences for
the year ended March 31, 2005, the Fund's undistributed net investment income
was increased by $157,289 and accumulated net realized loss from investments and
futures was increased by $157,289.
These differences are primarily due to reclassification of dividends and premium
amortization adjustments.
28
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,
---------------------------------------------------------------------------------
2005 2004 2003 2002 2001
--------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $ 15.39 $ 15.76 $ 15.15 $ 15.30 $ 14.54
Net investment income 0.83 0.84 0.97 1.01 1.04
Net realized and unrealized gains (losses)
from investment activities (0.31) 0.00# 0.58 (0.26) 0.79
Common share equivalent of dividends
and distributions paid to auction
preferred shareholders from:
Net investment income (0.14) (0.07) (0.10) (0.17) (0.31)
Net realized gains from investment
activities (0.01) (0.02) -- -- --
Total dividends and distributions paid to
auction preferred shareholders (0.15) (0.09) (0.10) (0.17) (0.31)
Net increase from operations 0.37 0.75 1.45 0.58 1.52
Dividends and distributions paid to
common shareholders from:
Net investment income (0.76) (0.84) (0.84) (0.73) (0.76)
Net realized gains from investment
activities (0.07) (0.24) -- -- --
Total dividends and distributions paid to
common shareholders (0.83) (1.08) (0.84) (0.73) (0.76)
--------------------------------------------------------------------------------------------------------------------------------
Auction preferred shares offering
expenses -- (0.04) -- -- --
--------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 14.93 $ 15.39 $ 15.76 $ 15.15 $ 15.30
MARKET VALUE, END OF YEAR $ 12.71 $ 14.48 $ 13.98 $ 13.42 $ 13.11
TOTAL INVESTMENT RETURN(1) (6.55)% 11.75% 10.61% 8.04% 16.02%
RATIO TO AVERAGE NET ASSETS
ATTRIBUTABLE TO COMMON SHARES:
Total expenses, net of fee waivers
by advisor 1.51% 1.35% 1.41% 1.42% 1.44%
Total expenses, before fee waivers
by advisor 1.96% 1.62% 1.60% 1.61% 1.63%
--------------------------------------------------------------------------------------------------------------------------------
Net investment income before
auction preferred shares dividends 5.52% 5.42% 6.23% 6.57% 7.00%
--------------------------------------------------------------------------------------------------------------------------------
Auction preferred shares dividends from
net investment income 0.90% 0.44% 0.61% 1.11% 2.10%
--------------------------------------------------------------------------------------------------------------------------------
Net investment income available to
common shareholders, net of
fee waivers by advisor 4.62% 4.98% 5.62% 5.46% 4.90%
--------------------------------------------------------------------------------------------------------------------------------
Net investment income available
to common shareholders, before
fee waivers by advisor 4.17% 4.71% 5.43% 5.27% 4.71%
--------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets applicable to common
shareholders, end of year (000's) $ 308,033 $ 317,568 $ 325,060 $ 312,552 $ 315,568
Portfolio turnover 50% 37% 24% 14% 2%
--------------------------------------------------------------------------------------------------------------------------------
Asset coverage per share of auction
preferred shares, end of year $ 123,341 $ 125,612 $ 158,353 $ 154,184 $ 155,189
--------------------------------------------------------------------------------------------------------------------------------
(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 could pay on Fund distributions.
# Amount represents less than $0.005 per common share.
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ERNST & YOUNG LLP
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, 2005, 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 five years in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (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. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and 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, 2005, 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 five years in the period then ended, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernst & young LLP
New York, New York
May 11, 2005
30
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 York Stock 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 had approximately $50.7 billion in assets
under management as of March 31, 2005.
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 WALL STREET JOURNAL,
THE NEW YORK TIMES and BARRON'S, as well as in numerous other publications.
PROXY VOTING POLICIES AND PROCEDURES AND RECORD
You may obtain a description of the Fund's proxy voting policies and procedures
(and information regarding how the Fund voted any proxies related to portfolio
securities during the 12-month period ended June 30, 2004), without charge, upon
request by contacting the Fund directly at 1-800-647-1568, online on the Fund's
Web site: www.ubs.com/ubsglobalam-proxy, or on the EDGAR Database on the SEC's
Web site (http://www.sec.gov).
QUARTERLY FORM N-Q PORTFOLIO SCHEDULE
The Fund will file its complete schedule of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third quarters of
each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the SEC's
Web site at http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied
at the SEC's Public Reference Room in Washington, D.C. Information on the
operation of the SEC's Public Reference Room may be obtained by calling
1-800-SEC-0330. Additionally, you may obtain copies of Forms N-Q from the Fund
upon request by calling 1-800-647-1568.
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 Financial Services 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
31
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 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.
32
(This page has been left blank intentionally)
33
SUPPLEMENTAL INFORMATION (UNAUDITED)
BOARDS 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 successor 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+; 58 Director Since 1995 Mrs. Alexander is retired. She was an executive
c/o UBS Global Asset vice president of UBS Financial Services Inc.
Management (from March 1984 to December 2002). She was chief
51 West 52nd Street executive officer (from January 1995 to October
New York, NY 10019 2000), a director (from January 1995 to September
2001) and chairman (from March 1999 to September
2001) of UBS Global AM (formerly known as Mitchell
Hutchins Asset Management Inc.).
Meyer Feldberg++; 63 Director Since 1993 Professor Feldberg is a senior advisor to Morgan
Morgan Stanley Stanley (financial services) (since March 2005).
1585 Broadway He is also Dean Emeritus and Sanford Bernstein
33rd Floor Professor of Leadership and Ethics at Columbia
New York, NY 10036 Business School, although on a two year leave of
absence. Prior to July 2004, he was Dean and
Professor of Management of the Graduate School of
Business at Columbia University (since 1989).
34
NUMBER OF
NAME, ADDRESS, PORTFOLIOS IN FUND COMPLEX OTHER DIRECTORSHIPS
AND AGE OVERSEEN BY DIRECTOR HELD BY DIRECTOR
--------------------------------------------------------------------------------------------------------------------------
Margo N. Alexander+; 58 Mrs. Alexander is a director or trustee of 16 investment None
c/o UBS Global Asset companies (consisting of 33 portfolios) for which UBS
Management Global AM or one of its affiliates serves as investment
51 West 52nd Street advisor, sub-advisor or manager.
New York, NY 10019
Meyer Feldberg++; 63 Professor Feldberg is a director or trustee of 30 Professor Feldberg is also a
Morgan Stanley investment companies (consisting of 47 portfolios) for director of Primedia Inc.
1585 Broadway which UBS Global AM or one of its affiliates serves as (publishing), Federated Department
33rd Floor investment advisor, sub-advisor or manager. Stores, Inc. (operator of
New York, NY 10036 department stores), Revlon, Inc.
(cosmetics) and SAPPI, Ltd.
(producer of paper).
35
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; 69 Director and Since 1995 (Director) Mr. Armstrong is chairman and principal of R.Q.A.
c/o Willkie Farr & Chairman of the Since 2004 (Chairman Enterprises (management consulting firm) (since
Gallagher LLP Board of of the Board of April 1991 and principal occupation since March
787 Seventh Avenue Directors Directors) 1995).
New York, NY 10019-6099
David J. Beaubien; 70 Director Since 2001 Mr. Beaubien is retired (since 2003). He was
84 Doane Road chairman of Yankee Environmental Systems, Inc., a
Ware, MA 01082 manufacturer of meteorological measuring systems
(since 1991).
Richard R. Burt; 58 Director Since 1995 Mr. Burt is chairman of Diligence LLC
1275 Pennsylvania (international information and security firm) and
Avenue, N.W. IEP Advisors (international investments and
Washington, D.C. 20004 consulting firm).
Carl W. Schafer; 69 Director Since 1996 Mr. Schafer is president of the Atlantic
66 Witherspoon Street #1100 Foundation (charitable foundation) (since 1990).
Princeton, NJ 08542
William D. White; 71 Director Since 2001 Mr. White is retired (since 1994).
P.O. Box 199
Upper Black Eddy, PA 18972
36
NUMBER OF
NAME, ADDRESS, PORTFOLIOS IN FUND COMPLEX OTHER DIRECTORSHIPS
AND AGE OVERSEEN BY DIRECTOR HELD BY DIRECTOR
--------------------------------------------------------------------------------------------------------------------------
Richard Q. Armstrong; 69 Mr. Armstrong is a director or trustee of 16 investment None
c/o Willkie Farr & companies (consisting of 33 portfolios) for which UBS
Gallagher LLP Global AM or one of its affiliates serves as investment
787 Seventh Avenue advisor, sub-advisor or manager.
New York, NY 10019-6099
David J. Beaubien; 70 Mr. Beaubien is a director or trustee of 16 investment Mr. Beaubien is also a director of
84 Doane Road companies (consisting of 33 portfolios) for which UBS IEC Electronics, Inc., a
Ware, MA 01082 Global AM or one of its affiliates serves as investment manufacturer of electronic
advisor, sub-advisor or manager. assemblies.
Richard R. Burt; 58 Mr. Burt is a director or trustee of 16 investment Mr. Burt is also a director of
1275 Pennsylvania companies (consisting of 33 portfolios) for which UBS Hollinger International, Inc.
Avenue, N.W. Global AM or one of its affiliates serves as investment (publishing), HCL Technologies,
Washington, D.C. 20004 advisor, sub-advisor or manager. Ltd. (software and information
technologies), The Central
European Fund, Inc., The Germany
Fund, Inc., IGT, Inc. (provides
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 Mutual Funds Family
(consisting of 52 portfolios).
Carl W. Schafer; 69 Mr. Schafer is a director or trustee of 16 investment Mr. Schafer is also a director of
66 Witherspoon Street #1100 companies (consisting of 33 portfolios) for which UBS Labor Ready, Inc. (temporary
Princeton, NJ 08542 Global AM or one of its affiliates serves as investment employment), Guardian Life
advisor, sub-advisor or manager. Insurance Company Mutual Funds
(consisting of 25 portfolios), the
Harding, Loevner Funds (consisting
of three portfolios), E.I.I.
Realty Securities Trust
(consisting of two portfolios) and
Frontier Oil Corporation.
William D. White; 71 Mr. White is a director or trustee of 16 investment None
P.O. Box 199 companies (consisting of 33 portfolios) for which UBS
Upper Black Eddy, PA 18972 Global AM or one of its affiliates serves as investment
advisor, sub-advisor or manager.
37
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 PERSON
AND AGE FUND SERVED SERVES AS OFFICER
--------------------------------------------------------------------------------------------------------------------------
Joseph Allessie*; 39 Vice President Since 2005 Mr. Allessie is a director and associate general
and Assistant counsel at UBS Global AM (since 2005). Prior to
Secretary joining UBS Global AM he was senior vice president
and general counsel of Kenmar Advisory Corp. (from
2004-2005). Prior to that Mr. Allessie was general
counsel and secretary of Global Asset Management
(USA) Inc., GAM Investments, GAM Services, GAM
Funds, Inc. and the GAM Avalon Funds (from 1999 to
2004). Such entities are affiliates of UBS Global
AM. Prior to joining GAM, Mr. Allessie was
Regulatory Officer to the State of New Jersey,
Department of Law and Public Safety, Bureau of
Securities (from 1993 to 1999). Mr. Allessie is a
vice president and assistant secretary of 20
investment companies (consisting of 75 portfolios)
for which UBS Global AM or one of its affiliates
serves as investment advisor, sub-advisor or
manager.
W. Douglas Beck*; 38 President Since 2005 Mr. Beck is an executive director and head of
product development and management for 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. Mr.
Beck is president of 20 investment companies
(consisting of 75 portfolios) for which UBS Global
AM or one of its affiliates serves as investment
advisor, sub-advisor or manager, and was vice
president of such investment companies from 2003
to 2005.
38
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 PERSON
AND AGE FUND SERVED SERVES AS OFFICER
--------------------------------------------------------------------------------------------------------------------------
James Capezzuto*; 41 Vice President Since 2004 Mr. Capezzuto is a director and associate general
and Assistant counsel at UBS Global AM (since 2004). Prior to
Secretary joining UBS Global AM he was senior vice
president, senior compliance manager at Bank of
America (from 2003-2004). Prior to that he was
general counsel at Steinberg Priest & Sloane and
prior to that he was director and senior counsel
at Deutsche Asset Management (from 1996-2002).
Mr. Capezzuto is a vice president and assistant
secretary of 20 investment companies (consisting
of 75 portfolios) for which UBS Global AM or one
of its affiliates serves as investment advisor,
sub-advisor or manager.
Thomas Disbrow*; 39 Vice President Since 2000 Mr. Disbrow is a director, head of retail mutual
and Treasurer (Vice President) fund operations and co-head of the mutual fund
Since 2004 finance department of UBS Global AM. Prior to
(Treasurer) November 1999, he was a vice president of
Zweig/Glaser Advisers. Mr. Disbrow is a vice
president and treasurer of 16 investment companies
(consisting of 33 portfolios) and vice president
and assistant treasurer of four investment
companies (consisting of 42 portfolios) for which
UBS Global AM or one of its affiliates serves as
investment advisor, sub-advisor or manager.
Elbridge T. Gerry III*; Vice President Since 1996 Mr. Gerry is a managing director-municipal fixed
48 income of UBS Global AM. Mr. Gerry is a vice
president of six investment companies (consisting
of 10 portfolios) for which UBS Global AM or one
of its affiliates serves as investment advisor,
sub-advisor or manager.
39
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 PERSON
AND AGE FUND SERVED SERVES AS OFFICER
--------------------------------------------------------------------------------------------------------------------------
Mark F. Kemper**; 47 Vice President Since 2004 Mr. Kemper is general counsel of UBS Global Asset
and Secretary Management--Americas region (since July 2004). Mr.
Kemper also is an executive director of UBS Global
Asset Management (Americas) Inc. ("UBS Global AM
(Americas)") and was its deputy general counsel
from July 2001 to July 2004. He has been secretary
of UBS Global AM (Americas) since 1999 and
assistant secretary of UBS Global Asset Management
Trust Company since 1993. Mr. Kemper is secretary
of UBS Global AM (since 2004). Mr. Kemper is vice
president and secretary of 20 investment companies
(consisting of 75 portfolios) for which UBS Global
AM (Americas) or one of its affiliates serves as
investment advisor, sub-advisor or manager.
Joanne M. Kilkeary*; Vice President Since 2004 Ms. Kilkeary is an associate director (since 2000)
37 and Assistant and a senior manager (since 2004) of the mutual
Treasurer fund finance department of UBS Global AM. Ms.
Kilkeary is a vice president and assistant
treasurer of 16 investment companies (consisting
of 33 portfolios) for which UBS Global AM or one
of its affiliates serves as investment advisor,
sub-advisor or manager.
Joseph T. Malone*; 37 Vice President Since 2004 Mr. Malone is a director and co-head of the mutual
and Assistant fund finance department of UBS Global AM. From
Treasurer August 2000 through June 2001, he was the
controller at AEA Investors Inc. From March 1998
to August 2000, Mr. Malone was a manager within
the investment management services practice of
PricewaterhouseCoopers LLC. Mr. Malone is vice
president and assistant treasurer of 16 investment
companies (consisting of 33 portfolios) and vice
president, treasurer and principal accounting
officer of four investment companies (consisting
of 42 portfolios) for which UBS Global AM or one
of its affiliates serves as investment advisor,
sub-advisor or manager.
40
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 PERSON
AND AGE FUND SERVED SERVES AS OFFICER
--------------------------------------------------------------------------------------------------------------------------
Joseph McGill*; 43 Vice President Since 2004 Mr. McGill is an executive director and chief
and Chief compliance officer at UBS Global AM and UBS Global
Compliance AM (Americas) (since 2003). Prior to joining UBS
Officer Global AM he was Assistant General Counsel, J.P.
Morgan Investment Management (from 1999-2003). Mr.
McGill is a vice president and chief compliance
officer of 20 investment companies (consisting of
75 portfolios) for which UBS Global AM or one of
its affiliates serves as investment advisor,
sub-advisor or manager.
William Veronda*; 59 Vice President Since 2004 Mr. Veronda is an executive director--municipal
fixed income of UBS Global AM (since 1995). Mr.
Veronda is a vice president of two investment
companies (consisting of two portfolios) for which
UBS Global AM or one of its affiliates serves as
investment advisor, sub-advisor or manager.
Keith A. Weller*; 43 Vice President Since 1995 Mr. Weller is an executive director and associate
and Assistant general counsel of UBS Global AM. Mr. Weller is a
Secretary vice president and assistant secretary of 20
investment companies (consisting of 75 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.
** This person's business address is One North Wacker Drive, Chicago, Illinois
60606.
# 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. Each director who has attained the age of
seventy-two (72) years will be subject to retirement on the last day of the
month in which he or she attains such age. Officers of the Fund are
appointed by the directors and serve at the pleasure of the board.
+ Mrs. Alexander is deemed an"interested person" of the Fund as defined in
the Investment Company Act because an immediate family member is an
employee of an affiliate of UBS Global AM.
++ Professor Feldberg is deemed an "interested person" of the Fund as defined
in the Investment Company Act because he is a senior advisor to Morgan
Stanley, a financial services firm with which the Fund may conduct
transactions.
41
NEW YORK STOCK EXCHANGE CERTIFICATIONS (UNAUDITED)
Insured Municipal Income Fund Inc. (the "Fund") is listed on the New York Stock
Exchange ("NYSE"). As a result, it is subject to certain corporate governance
rules and related interpretations issued by the exchange. Pursuant to those
requirements, the Fund must include information in this report regarding certain
certifications. The Fund's president and treasurer have filed certifications
with the SEC regarding the quality of the Fund's public disclosure. Those
certifications were made pursuant to Section 302 of the Sarbanes-Oxley Act
("Section 302 Certifications"). The Section 302 Certifications were filed as
exhibits to the Fund's annual report on Form N-CSR, which included a copy of
this annual report along with other information about the Fund. After the Fund's
2004 annual meeting of shareholders, it filed a certification with the NYSE on
August 11, 2004 stating that its president was unaware of any violation of the
NYSE's Corporate Governance listing standards.
42
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DIRECTORS
Richard Q. Armstrong Richard R. Burt
CHAIRMAN Meyer Feldberg
Carl W. Schafer
Margo N. Alexander William D. White
David J. Beaubien
PRINCIPAL OFFICERS
W. Douglas Beck Elbridge T. Gerry III
PRESIDENT VICE PRESIDENT
Mark F. Kemper William Veronda
VICE PRESIDENT AND SECRETARY VICE PRESIDENT
Thomas Disbrow
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) 2005 UBS GLOBAL ASSET MANAGEMENT (US) INC. ALL RIGHTS RESERVED.
[UBS LOGO]
Presorted
Standard
US Postage
PAID
Smithtown, NY
Permit 700
UBS GLOBAL ASSET MANAGEMENT (US) INC.
51 West 52nd Street
New York, NY 10019
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions pursuant to Section 406 of
the Sarbanes-Oxley Act of 2002. (The registrant has designated the code of
ethics adopted pursuant to Sarbanes-Oxley as a "Code of Conduct" to lessen the
risk of confusion with its separate code of ethics adopted pursuant to Rule
17j-1 under the Investment Company Act of 1940, as amended.)
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board has determined that the following person serving on the
registrant's Audit Committee is an "audit committee financial expert" as defined
in item 3 of Form N-CSR: Richard Q. Armstrong. Mr. Armstrong is independent as
defined in item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES:
For the fiscal years ended March 31, 2005 and March 31, 2004, the
aggregate Ernst & Young LLP (E&Y) audit fees for professional
services rendered to the registrant were approximately $37,300 and
$45,650, respectively.
Fees included in the audit fees category are those associated with
the annual audits of financial statements and services that are
normally provided in connection with statutory and regulatory
filings.
(b) AUDIT-RELATED FEES:
In each of the fiscal years ended March 31, 2005 and March 31,
2004, the aggregate audit-related fees billed by E&Y for services
rendered to the registrant that are reasonably related to the
performance of the audits of the financial statements, but not
reported as audit fees, were approximately $12,500 and $15,618,
respectively, which includes amounts related to non-audit services
prior to May 6, 2003 that would have been subject to pre-approval
if the SEC rules relating to the pre-approval of non-audit
services had been in effect at that time.
Fees included in the audit-related category are those associated
with (1) the reading and providing of comments on the 2004 and
2003 semiannual financial statements, (2) review of the
consolidated 2003 and 2002 report on UBS Funds' profitability of
UBS Global Asset Management (US) Inc. ("UBS Global AM") to assist
the board members in their annual advisory/administration contract
reviews and (3) auction preferred shares testing for the
registrant's fiscal years ended 2005 and 2004.
There were no audit-related fees required to be approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the
fiscal years indicated above.
(c) TAX FEES:
In each of the fiscal years ended March 31, 2005 and March 31,
2004, the aggregate tax fees billed by E&Y for professional
services rendered to the registrant were approximately $2,600 and
$9,700, respectively, which includes amounts related to tax
services prior to May 6, 2003 that would have been subject to
pre-approval if the SEC rules relating to the pre-approval of
non-audit services had been in effect at that time.
Fees included in the tax fees category comprise all services
performed by professional staff in the independent accountant's
tax division except those services related to the audits. This
category comprises fees for review of tax compliance, tax return
preparation and excise tax calculations.
There were no tax fees required to be approved pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the
fiscal years indicated above.
(d) ALL OTHER FEES:
In each of the fiscal years ended March 31, 2005 and March 31,
2004, there were no fees billed by E&Y for products and services,
other than the services reported in Item 4(a)-(c) above, rendered
to the registrant.
Fees included in the all other fees category would consist of
services related to internal control reviews, strategy and other
consulting, financial information systems design and
implementation, consulting on other information systems, and other
tax services unrelated to the registrant.
There were no "all other fees" required to be approved pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the
fiscal years indicated above.
(e) (1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES:
The registrant's Audit Committee ("audit committee") has
adopted an "Audit Committee Charter (Amended and Restated as
of May 12, 2004)" (the "charter"). The charter contains the
audit committee's pre-approval policies and procedures.
Reproduced below is an excerpt from the charter regarding
pre-approval policies and procedures:
The [audit ]Committee shall:
...
2. Pre-approve (a) all audit and permissible
non-audit services(1) to be provided to the Fund
and (b) all permissible non-audit services to be
provided by the Fund's independent auditors to
UBS Global [AM] and any Covered Service
Providers, if the engagement relates directly to
the operations and financial reporting of the
Fund. In carrying out this responsibility, the
Committee shall seek periodically from UBS Global
[AM] and from the independent auditors a list of
such audit and permissible non-audit services
that can be expected to be rendered to the Fund,
UBS Global [AM] or any Covered Service Providers
by the Fund's independent auditors, and an
estimate of the fees sought to be paid in
connection with such services. The Committee may
delegate its responsibility to pre-approve any
such audit and permissible non-audit services to
a sub-committee consisting of the Chairperson of
the Committee and two other members of the
Committee as the Chairperson, from time to time,
may determine and appoint, and such sub-committee
shall report to the Committee, at its next
regularly scheduled meeting after the
sub-committee's meeting, its decision(s). From
year to year, the Committee shall report to the
Board whether this system of pre-approval has
been effective and efficient or whether this
Charter should be amended to allow for
pre-approval pursuant to such policies and
procedures as the Committee shall approve,
including the delegation of some or all of the
Committee's pre-approval responsibilities to
other persons (other than UBS Global [AM] or the
Fund's officers).
----------
(1) The Committee will not approve non-audit
services that the Committee believes may
taint the independence of the auditors.
Currently, permissible non-audit services
include any professional services (including
tax services) that are not prohibited
services as described below, provided to the
Fund by the independent auditors, other than
those provided to the Fund in connection
with an audit or a review of the financial
statements of the Fund. Permissible
non-audit services may NOT include: (i)
bookkeeping or other services related to the
accounting records or financial statements
of the Fund; (ii) financial information
systems design and implementation; (iii)
appraisal or valuation services, fairness
opinions or contribution-in-kind reports;
(iv) actuarial services; (v) internal audit
outsourcing services; (vi) management
functions or human resources; (vii) broker
or dealer, investment adviser or investment
banking services; (viii) legal services and
expert services unrelated to the audit; and
(ix) any other service the Public Company
Accounting Oversight Board determines, by
regulation, is impermissible.
Pre-approval by the Committee of any
permissible non-audit services is not
required so long as: (i) the aggregate
amount of all such permissible non-audit
services provided to the Fund, UBS Global
[AM] and any service providers controlling,
controlled by or under common control with
UBS Global [AM] that provide ongoing
services to the Fund ("Covered Service
Providers") constitutes not more than 5% of
the total amount of revenues paid to the
independent auditors (during the fiscal year
in which the permissible non-audit services
are provided) by (a) the Fund, (b) its
investment adviser and (c) any entity
controlling, controlled by, or under common
control with the investment adviser that
provides ongoing services to the Fund during
the fiscal year in which the services are
provided that would have to be approved by
the Committee; (ii) the permissible
non-audit services were not recognized by
the Fund at the time of the engagement to be
non-audit services; and (iii) such services
are promptly brought to the attention of the
Committee and approved by the Committee (or
its delegate(s)) prior to the completion of
the audit.
(e) (2) Services approved pursuant to paragraph (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X:
AUDIT-RELATED FEES:
There were no amounts that were approved by the audit
committee pursuant to the de minimis exception for
the fiscal years ended March 31, 2005 and March 31,
2004 on behalf of the registrant.
There were no amounts that were required to be
approved by the audit committee pursuant to the de
minimis exception for the fiscal years ended March
31, 2005 and March 31, 2004 on behalf of the
registrant's service providers that relate directly
to the operations and financial reporting of the
registrant.
TAX FEES:
There were no amounts that were approved by the audit
committee pursuant to the de minimis exception for
the fiscal years ended March 31, 2005 and March 31,
2004 on behalf of the registrant.
There were no amounts that were required to be
approved by the audit committee pursuant to the de
minimis exception for the fiscal years ended March
31, 2005 and March 31, 2004 on behalf of the
registrant's service providers that relate directly
to the operations and financial reporting of the
registrant.
ALL OTHER FEES:
There were no amounts that were approved by the audit
committee pursuant to the de minimis exception for
the fiscal years ended March 31, 2005 and March 31,
2004 on behalf of the registrant.
There were no amounts that were required to be
approved by the audit committee pursuant to the de
minimis exception for the fiscal years ended March
31, 2005 and March 31, 2004 on behalf of the
registrant's service providers that relate directly
to the operations and financial reporting of the
registrant.
(f) According to E&Y, for the fiscal year ended March 31, 2005, the
percentage of hours spent on the audit of the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons who are not full-time,
permanent employees of E&Y was 0%.
(g) For the fiscal years ended March 31, 2005 and March 31, 2004, the
aggregate fees billed by E&Y of $135,880 and $436,318,
respectively, for non-audit services rendered on behalf of the
registrant ("covered"), its investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser) and
any entity controlling, controlled by, or under common control
with the adviser ("non-covered") that provides ongoing services to
the registrant for each of the last two fiscal years of the
registrant is shown in the table below:
2005 2004
---------- ----------
Covered Services $ 15,100 $ 25,318
Non-Covered Services 120,780 411,000
(h) The registrant's audit committee was not required to consider
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with
maintaining the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately designated standing audit committee (the "Audit
Committee") established in accordance with Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended. The Audit Committee is comprised of the
following board members: Mr. Armstrong, Mr. Beaubien, Mr. Burt and Mr. White.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included as part of the report to shareholders filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The registrant's Board of Directors believes that the voting of proxies on
securities held by the registrant is an important element of the overall
investment process. As such, the Board has delegated the responsibility to vote
such proxies to the registrant's advisor. Following is a summary of the proxy
voting policy of the advisor.
CORPORATE GOVERNANCE PHILOSOPHY, VOTING GUIDELINES AND POLICY SUMMARY
The proxy voting policy of UBS Global AM is based on its belief that voting
rights have economic value and must be treated accordingly. Generally, UBS
Global AM expects the boards of directors of companies issuing securities held
by its clients to act as stewards of the financial assets of the company, to
exercise good judgment and practice diligent oversight with the management of
the company. While there is no absolute set of rules that determines appropriate
corporate governance under all circumstances and no set of rules will guarantee
ethical behavior, there are certain benchmarks, which, if substantial progress
is made toward, give evidence of good corporate governance. UBS Global AM may
delegate to an independent proxy voting and research service the authority to
exercise the voting rights associated with certain client holdings. Any such
delegation shall be made with the direction that the votes be exercised in
accordance with UBS Global AM's proxy voting policy.
When UBS Global AM's view of a company's management is favorable, UBS Global AM
generally supports current management initiatives. When UBS Global AM's view is
that changes to the management structure would probably increase shareholder
value, UBS Global AM may not support existing management proposals. In general,
UBS Global AM (1) opposes proposals which act to entrench management; (2)
believes that boards should be independent of company management and composed of
persons with requisite skills, knowledge and experience; (3) opposes structures
which impose financial constraints on changes in control; (4) believes
remuneration should be commensurate with responsibilities
and performance; and (5) believes that appropriate steps should be taken to
ensure the independence of auditors.
UBS Global AM has implemented procedures designed to identify whether it has a
conflict of interest in voting a particular proxy proposal, which may arise as a
result of its or its affiliates' client relationships, marketing efforts or
banking and broker/dealer activities. To address such conflicts, UBS Global AM
has imposed information barriers between it and its affiliates who conduct
banking, investment banking and broker/dealer activities and has implemented
procedures to prevent business, sales and marketing issues from influencing our
proxy votes. Whenever UBS Global AM is aware of a conflict with respect to a
particular proxy, its appropriate local corporate governance committee is
required to review and agree to the manner in which such proxy is voted.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
There were no purchases made by or on behalf of the registrant or any
"affiliated purchaser," as defined in Rule 10b-18(a)(3) under the Securities
Exchange Act of 1934, as amended, of shares of the registrant's equity
securities made in the period covered by this report.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant's Board has established a Nominating and Corporate Governance
Committee. The Nominating and Corporate Governance Committee will consider
nominees recommended by shareholders if a vacancy occurs among those board
members who are not "interested persons" as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended. In order to recommend a nominee, a
shareholder should send a letter to the chairperson of the Nominating and
Corporate Governance Committee, Richard R. Burt, care of the Secretary of the
registrant at UBS Global Asset Management (US) Inc., 51 West 52nd Street, New
York, New York 10019-6114, and indicate on the envelope "Nominating and
Corporate Governance Committee." The shareholder's letter should state the
nominee's name and should include the nominee's resume or curriculum vitae, and
must be accompanied by a written consent of the individual to stand for election
if nominated for the Board and to serve if elected by shareholders.
ITEM 11. 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-3(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) The registrant's principal executive officer and principal financial
officer are aware of no changes in the registrant's internal control
over financial reporting that occurred during the
registrant's most recent fiscal half-year that has materially affected,
or is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
ITEM 12. EXHIBITS.
(a) (1) Code of Ethics as required pursuant to Section 406 of the
Sarbanes-Oxley Act of 2002 (and designated by registrant as a "Code of
Conduct") is incorporated by reference herein from Exhibit EX-99.CODE
ETH to the registrant's Report on Form N-CSR filed June 9, 2004
(Accession Number: 0000950136-04-001889)(SEC File No. 811-07528).
(a) (2) Certifications of principal executive officer and principal
financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 is attached hereto as Exhibit EX-99.CERT.
(a) (3) Written solicitation to purchase securities under Rule 23c-1 under
the Investment Company Act of 1940 sent or given during the period
covered by the report by or on behalf of the registrant to 10 or more
persons - The registrant has not engaged in such a solicitation during
the period covered by this report.
(b) Certifications of principal executive officer and principal financial
officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is
attached hereto as Exhibit EX-99.906CERT.
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/ W. Douglas Beck
-------------------
W. Douglas Beck
President
Date: May 27, 2005
------------
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/ W. Douglas Beck
-------------------
W. Douglas Beck
President
Date: May 27, 2005
------------
By: /s/ Thomas Disbrow
------------------
Thomas Disbrow
Vice President and Treasurer
Date: May 27, 2005
------------