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
_________________________________________________
Insured Municipal Income Fund Inc.
____________________________________________________________________________
(Exact name of registrant as specified in charter)
51 West 52nd Street, New York, New York 10019-6114
____________________________________________________________________________
(Address of principal executive offices) (Zip code)
Mark F. Kemper, Esq.
UBS Global Asset Management
51 West 52nd Street
New York, NY 10019-6114
(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
Date of fiscal year end: March 31
Date of reporting period: March 31, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
--------------------------------
[LOGO OF UBS] UBS Global Asset
Management
INSURED MUNICIPAL INCOME
FUND INC.
ANNUAL REPORT
MARCH 31, 2006
INSURED MUNICIPAL INCOME FUND INC.
May 15, 2006
DEAR SHAREHOLDER,
We are pleased to present you with the annual report for Insured Municipal
Income Fund Inc. (the "Fund") for the fiscal year ended March 31, 2006.
PERFORMANCE
Over the one-year period, the Fund returned 4.29% on a net asset value basis and
9.51% on a market price basis. Over the same period, the median returns for the
Fund's peer group, the Lipper Insured Municipal Debt Funds (Leveraged), were
4.70% and 9.21% based on net asset value and market price, respectively.
Finally, the Fund's benchmark, the Lehman Brothers Municipal Bond Index (the
"Index"), returned 3.81% for the period. (For more performance information,
please refer to "Performance at a Glance" on page 6.)
The Fund continued to use leverage during the period, which was approximately
40% of total assets as of March 31, 2006. While short-term rates rose over the
period and increased the Fund's borrowing costs, this leverage still had a
positive effect on the Fund's income during the reporting period, as the yields
on the Fund's longer-term bonds more than offset the borrowing costs. Leverage
magnifies returns on both the upside and on the downside, creating a wider range
of returns within the Fund's peer group.
--------------------------------------------------------------------------------
INSURED MUNICIPAL INCOME FUND INC.
INVESTMENT GOAL:
High level of current income exempt from federal income tax, consistent with
preservation of capital.
PORTFOLIO MANAGER:
Kevin McIntyre
UBS Global Asset Management (Americas) Inc.
COMMENCEMENT:
June 8, 1993
NYSE SYMBOL:
PIF
DIVIDEND PAYMENTS:
Monthly
--------------------------------------------------------------------------------
AN INTERVIEW WITH PORTFOLIO MANAGER KEVIN McINTYRE
Q. HOW WOULD YOU DESCRIBE THE ECONOMIC ENVIRONMENT DURING THE REPORTING PERIOD?
A. Over the past 12 months, the US economy continued to strengthen, although it
was forced to absorb some rather significant blows during the late summer
and early fall. Energy prices, which were high throughout the year, were
exacerbated after Hurricanes Katrina and Rita hit the Gulf Coast, seriously
impairing the country's oil refining capacity and causing an estimated $100
billion in damage. Shortly after
--------------------------------------------------------------------------------
1
INSURED MUNICIPAL INCOME FUND INC.
Labor Day, oil broke $70 a barrel and gasoline topped an average of $3.00 per
gallon nationwide.
Beginning in October, however, economic data took a turn for the better.
Unemployment--despite large numbers of dislocated workers in the wake of
Katrina--trended downward throughout the year, finishing the period at 4.7%,
down from 5.1% in March 2005. Consumer confidence was particularly volatile
during this period, but finished the year strong. Finally, GDP remained
relatively solid throughout the period. Although final data put fourth
quarter 2005 GDP growth at 1.7%, advance estimates for the first quarter of
2006 showed a significant rebound, with the economy growing at 4.8%, the
highest it has been in nearly three years.
Q. HOW DID THE FEDERAL RESERVE BOARD (THE "FED") REACT TO THESE ECONOMIC
CONDITIONS?
A. The Fed--headed by its new chairman, Ben Bernanke--continued its tightening
campaign, raising the federal funds rate 25 basis points on eight separate
occasions during the reporting period, and once more after the period ended,
bringing the rate to 5.00%. (The federal funds rate is the interest rate
banks charge each other for overnight loans.)
The market consensus seems to be that the Fed may be near the end of this
current tightening policy (the Fed has raised rates at 16 consecutive
meetings since June 2004). While we can't be certain exactly when the Fed
will pause or end its current policy, we believe it is unlikely that 2006
will be the year of uninterrupted rate increases that 2005 was.
Q. HOW DID THE MUNICIPAL BOND MARKET PERFORM IN THIS ENVIRONMENT?
A. The municipal bond market on the whole outperformed Treasuries throughout the
past year. Although municipal bonds saw their yields rise along with
Treasuries' during the year, on a percentage basis, their performance was
stronger. This outperformance was most significant on the longer end of the
yield curve. The 30-year area of the curve, in fact, was the best-performing
segment of the municipal bond market during the reporting period. The one
exception to municipal bonds' outperformance trend was in issues on the short
end of the curve, which lagged similarly dated Treasuries.
Q. IN GENERAL TERMS, HOW DID YOU POSITION THE PORTFOLIO?
A. Over the past year, we believed that yields would continue to rise in concert
with the Fed's tightening cycle, and as a result, we maintained a defensive
duration position. During this period we opportunistically extended our
duration approximately one year in order to better position
--------------------------------------------------------------------------------
2
INSURED MUNICIPAL INCOME FUND INC.
the Fund versus its peer group and the Index. In terms of yield-curve
positioning, we continued to overweight securities with maturities of 20
years and longer, and decreased our position in the 10- to 15-year area of
the curve. Both moves benefited the portfolio on an absolute basis, as the
longer end of the curve performed better than other areas, including the
intermediate area. However, the Fund's peers held a larger exposure to the
30-year area of the curve, and this detracted somewhat from the Fund's
relative performance.
Q. FROM A SECTOR STANDPOINT, WHAT WERE IMPORTANT POSITIONS FOR THE FUND?
A. We strive to maintain a well-diversified portfolio regardless of market
conditions, and as a result, the Fund holds bonds in a number of different
industry sectors and subsectors. Over the past year, however, we focused
particularly on the water and airport sectors. Our research indicates that
the water sector tends to have stronger revenue and earnings stability than
some other sectors of the municipal market, even in changing economic
climates. We found relative value in the water sector versus other sectors,
and given the sector's relative stability, we added selectively to positions
there, making it the Fund's largest sector position.
Meanwhile, the airport sector continued to rebound during the period. A
significant portion of airport sector bonds are subject to the Alternative
Minimum Tax (AMT), and tend to offer higher yields. During the period, we
purchased NYC IDA revenue bonds for the Terminal One Group Association. The
bonds are rated A3/BBB+, are subject to AMT and have performed well over this
period. In addition, these bonds helped us to diversify the credit quality of
the portfolio. At period end, airport bonds represented 8.4% of the Fund's
total investments, up from 3.3% six months ago.
While our long-term outlook for the healthcare sector as a whole remains
negative, we see positive trends developing for certain healthcare providers
that have stable or improving finances and strong market share. With that in
mind, we have selectively added to our holdings in this sector, and
performance has been solid in recent months. Nonetheless, we remained
underweight to the sector on the whole, which ultimately detracted from
relative returns.
Although the tobacco sector posted very strong performance again during the
reporting period, we continued to avoid it, which detracted from performance
during the period. We do not believe the potential rewards in the tobacco
sector are commensurate with the risks our analysis indicates these bonds
entail. In an attempt to concentrate Fund
--------------------------------------------------------------------------------
3
INSURED MUNICIPAL INCOME FUND INC.
assets on risks we feel are likely to be compensated, we minimized our
exposure to the sector.
Q. DID THE FUND FOCUS ON ANY SPECIFIC STATES OR REGIONS?
A. From a regional standpoint, we continued to focus on states that exhibited
improved fiscal health and offered attractively valued municipal bonds.
Issues that we believe met that definition included long-term California
bonds and New York securities. While we continued to find opportunities in
Texas, we found New York bonds particularly attractive during the year and
increased our exposure rather significantly. These three states combined
represented nearly 60% of the Fund's total investments as of period end.
Q. WHAT FACTORS DO YOU BELIEVE WILL AFFECT THE FUND OVER THE COMING MONTHS?
A. We will continue to monitor a number of factors, including inflation and the
overall strength of the economy, both of which will likely play a role in the
Fed's future decisions on interest rates. The direction and magnitude of
interest rate changes will continue to play a significant role in our
duration strategy, as we seek to mitigate the effects of rising rates on the
portfolio. Overall, the portfolio remains well diversified, and we anticipate
continuing to seek out tax-advantaged yield opportunities while maintaining
liquidity.
--------------------------------------------------------------------------------
4
INSURED MUNICIPAL INCOME FUND INC.
We thank you for your continued support and welcome any comments or questions
you may have. For additional information on the UBS family of 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 (Americas) Inc.
/s/ Kevin McIntyre
KEVIN McINTYRE
Portfolio Management Team
Insured Municipal Income Fund Inc.
Director
UBS Global Asset Management (Americas) Inc.
/s/ Elbridge T. Gerry III
ELBRIDGE T. GERRY III
Portfolio Management Team
Insured Municipal Income Fund Inc.
Managing Director
UBS Global Asset Management (Americas) Inc.
This letter is intended to assist shareholders in understanding how the Fund
performed during the fiscal year ended March 31, 2006. The views and opinions in
the letter were current as of May 15, 2006. 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 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, 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
INSURED MUNICIPAL INCOME FUND INC.
PERFORMANCE AT A GLANCE (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED 03/31/06
NET ASSET VALUE RETURNS 6 MONTHS 1 YEAR 5 YEARS 10 YEARS
----------------------------------------------------------------------------------------------
Insured Municipal Income Fund Inc. 1.04% 4.29% 4.98% 5.98%
----------------------------------------------------------------------------------------------
Lipper Insured Municipal Debt Funds
(Leveraged) median 0.96% 4.70% 6.37% 6.29%
==============================================================================================
MARKET PRICE RETURNS
----------------------------------------------------------------------------------------------
Insured Municipal Income Fund Inc. 3.07% 9.51% 6.46% 7.13%
----------------------------------------------------------------------------------------------
Lipper Insured Municipal Debt Funds
(Leveraged) median 1.60% 9.21% 7.27% 6.74%
==============================================================================================
INDEX RETURNS
----------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index 0.98% 3.81% 5.18% 5.87%
==============================================================================================
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 3/31/06
----------------------------------------------------------------------------------------------
Market Price $13.02
----------------------------------------------------------------------------------------------
Net Asset Value (per share applicable to common shareholders) $14.70
----------------------------------------------------------------------------------------------
Net Investment Income Dividends paid to common shareholders
during the twelve months ended 3/31/06 $0.654
----------------------------------------------------------------------------------------------
March 2006 Dividend $0.058
----------------------------------------------------------------------------------------------
Market Yield* 5.35%
----------------------------------------------------------------------------------------------
NAV Yield* 4.73%
==============================================================================================
* 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.
--------------------------------------------------------------------------------
6
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO STATISTICS (UNAUDITED)
CHARACTERISTICS 3/31/06 9/30/05 3/31/05
--------------------------------------------------------------------------------------------
Net Assets Applicable to Common
Shareholders (mm) $303.3 $311.0 $308.0
--------------------------------------------------------------------------------------------
Weighted Average Maturity 15.4 yrs 14.3 yrs 11.7 yrs
--------------------------------------------------------------------------------------------
Weighted Average Duration 5.2 yrs 4.2 yrs 4.3 yrs
--------------------------------------------------------------------------------------------
Weighted Average Coupon 5.1% 5.0% 4.8%
--------------------------------------------------------------------------------------------
Leverage** 39.7% 40.1% 40.1%
--------------------------------------------------------------------------------------------
Callable/Maturing Within
Five Years* 12.3% 11.6% 18.3%
--------------------------------------------------------------------------------------------
Callable/Maturing Beyond
Five Years* 87.7% 88.4% 81.7%
============================================================================================
PORTFOLIO COMPOSITION*** 3/31/06 9/30/05 3/31/05
--------------------------------------------------------------------------------------------
Long-Term Municipal Bonds 154.3% 150.3% 144.5%
--------------------------------------------------------------------------------------------
Short-Term Municipal Notes 13.5 14.1 23.3
--------------------------------------------------------------------------------------------
Futures and Swaps 0.1 0.8 0.1
--------------------------------------------------------------------------------------------
Other Assets Less Liabilities 1.3 2.3 0.3
--------------------------------------------------------------------------------------------
Liquidation Value of Auction
Preferred Shares (69.2) (67.5) (68.2)
--------------------------------------------------------------------------------------------
TOTAL 100.0% 100.0% 100.0%
============================================================================================
CREDIT QUALITY*** 3/31/06 9/30/05 3/31/05
--------------------------------------------------------------------------------------------
AAA 139.0% 146.6% 140.8%
--------------------------------------------------------------------------------------------
AA 1.9 - -
--------------------------------------------------------------------------------------------
A 2.0 - -
--------------------------------------------------------------------------------------------
BBB 7.7 - -
--------------------------------------------------------------------------------------------
A-1/SP-1 13.5 14.1 23.3
--------------------------------------------------------------------------------------------
Nonrated 3.7 3.7 3.7
--------------------------------------------------------------------------------------------
Futures and Swaps 0.1 0.8 0.1
--------------------------------------------------------------------------------------------
Other Assets Less Liabilities 1.3 2.3 0.3
--------------------------------------------------------------------------------------------
Liquidation Value of Auction
Preferred Shares (69.2) (67.5) (68.2)
--------------------------------------------------------------------------------------------
TOTAL 100.0% 100.0% 100.0%
============================================================================================
* 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 shown are designated by Standard &
Poor's Rating Group, an independent rating agency.
--------------------------------------------------------------------------------
7
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO STATISTICS (UNAUDITED) (CONCLUDED)
TOP FIVE STATES* 3/31/06 9/30/05 3/31/05
------------------------------------------------------------------------------------------------------
California 30.5% California 38.1% California 30.5%
------------------------------------------------------------------------------------------------------
Texas 15.5 Texas 13.4 Texas 12.4
------------------------------------------------------------------------------------------------------
New York 14.2 New York 7.3 New York 10.0
------------------------------------------------------------------------------------------------------
Florida 7.4 Washington 6.4 Illinois 8.6
------------------------------------------------------------------------------------------------------
South Carolina 4.9 Georgia 5.4 New Mexico 6.5
------------------------------------------------------------------------------------------------------
TOTAL 72.5% 70.6% 68.0%
======================================================================================================
TOP FIVE SECTORS* 3/31/06 9/30/05 3/31/05
------------------------------------------------------------------------------------------------------
Water 25.4% Water 24.9% Power 21.2%
------------------------------------------------------------------------------------------------------
Power 17.5 Power 19.3 Water 21.2
------------------------------------------------------------------------------------------------------
Airport 8.4 Hospital 5.0 Escrowed to Maturity 10.3
------------------------------------------------------------------------------------------------------
Hospital 4.0 Lease 4.2 Hospital 6.5
------------------------------------------------------------------------------------------------------
University 2.5 Airport 3.3 Sales Tax 4.2
------------------------------------------------------------------------------------------------------
TOTAL 57.8% 56.7% 63.4%
======================================================================================================
* 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.
--------------------------------------------------------------------------------
8
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2006
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-----------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--154.35%
-----------------------------------------------------------------------------------------------
CALIFORNIA--51.12%
$ 3,000 California State
Department of
Water Resources
Revenue-Central
Valley Project-
Series AC
(MBIA Insured) Aaa AAA 12/01/27 5.000% $3,123,960
-----------------------------------------------------------------------------------------------
30 California State
General Obligation
(FGIC Insured) Aaa AAA 11/01/12 7.000 30,378
-----------------------------------------------------------------------------------------------
3,305 Chino Valley Unified
School District-
Series A (FSA
Insured) Aaa AAA 08/01/26 5.000 3,427,946
-----------------------------------------------------------------------------------------------
5,000 Contra Costa Water
District Revenue-
Series M (FSA
Insured) Aaa AAA 10/01/18 5.000 5,281,150
-----------------------------------------------------------------------------------------------
4,400 Inglewood Unified
School District-
1998 Election-
Series C (FSA
Insured) Aaa AAA 10/01/28 5.000 4,564,252
-----------------------------------------------------------------------------------------------
2,000 Long Beach Finance
Authority Lease
Revenue-Aquarium
of the South Pacific
(AMBAC Insured) Aaa AAA 11/01/15 5.500 2,163,060
-----------------------------------------------------------------------------------------------
5,000 Long Beach Harbor
Revenue Refunding-
Series A (FGIC
Insured) ++ Aaa AAA 05/15/13 6.000 5,570,950
-----------------------------------------------------------------------------------------------
5,000 Los Angeles Community
College District
Refunding-Election
2001-Series A
(FSA Insured) Aaa AAA 08/01/25 5.000 5,235,100
-----------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
9
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2006
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-----------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-----------------------------------------------------------------------------------------------
CALIFORNIA--(CONTINUED)
$9,000 Los Angeles Community
College District
Refunding-Election
2001-Series A
(FSA Insured) Aaa AAA 06/01/26 5.000% $9,416,160
-----------------------------------------------------------------------------------------------
6,000 Los Angeles County
Sanitation District
Financing Authority
Revenue-Capital
Project-District
No.14-Subseries-B
(FGIC Insured) NR AAA 10/01/28 5.000 6,277,080
-----------------------------------------------------------------------------------------------
8,475 Los Angeles County
Sanitation District
Financing Authority
Revenue-Capital
Project-Series A
(FSA Insured) Aaa AAA 10/01/20 5.000 8,895,021
-----------------------------------------------------------------------------------------------
3,000 Los Angeles University
School District-
Series A
(FSA Insured) Aaa AAA 07/01/20 5.250 3,224,760
-----------------------------------------------------------------------------------------------
11,625 Los Angeles Waste &
Water Systems
Revenue Refunding-
Subseries A (MBIA
Insured) Aaa AAA 06/01/26 5.000 12,049,080
-----------------------------------------------------------------------------------------------
7,000 Los Angeles Water
& Power Revenue-
Power Systems-
Series A-A-1 (FSA
Insured) Aaa AAA 07/01/21 5.250 7,400,050
-----------------------------------------------------------------------------------------------
5,000 Los Angeles Water &
Power Revenue-
Power Systems-
Series A-Subseries A-2
(MBIA-IBC Insured) Aaa AAA 07/01/30 5.000 5,174,750
-----------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
10
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2006
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-----------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-----------------------------------------------------------------------------------------------
CALIFORNIA--(CONTINUED)
$6,000 Los Angeles Water &
Power Revenue-Power
Systems-Series B
(FSA Insured) Aaa AAA 07/01/25 5.000% $6,232,320
-----------------------------------------------------------------------------------------------
1,000 Marin Municipal
Water District
Revenue (AMBAC
Insured) Aaa AAA 07/01/18 5.000 1,055,310
-----------------------------------------------------------------------------------------------
4,260 Metropolitan Water
District Waterworks
Revenue-Series
B-3 (MBIA Insured) Aaa AAA 10/01/17 5.000 4,524,035
-----------------------------------------------------------------------------------------------
5,000 Metropolitan Water
District Waterworks
Revenue-Series
B-3 (MBIA Insured) Aaa AAA 10/01/29 5.000 5,210,850
-----------------------------------------------------------------------------------------------
7,160 Oxnard Financing
Authority Waste &
Water Revenue-
Redwood Trunk
Sewer & Headworks-
Series A (FGIC
Insured) Aaa AAA 06/01/34 5.250 7,596,474
-----------------------------------------------------------------------------------------------
10,000 Sacramento County
Sanitation District
Financing Authority
Revenue (AMBAC
Insured) Aaa AAA 12/01/27 5.000 10,269,400
-----------------------------------------------------------------------------------------------
5,000 Sacramento Municipal
Utility District
Electric
Revenue-Municipal
Utility District-
Series R (MBIA
Insured) Aaa AAA 08/15/33 5.000 5,174,150
-----------------------------------------------------------------------------------------------
7,000 Sacramento Municipal
Utility Revenue-
Municipal Utility
District-Series R
(MBIA Insured) Aaa AAA 08/15/19 5.000 7,370,090
-----------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
11
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2006
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-----------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-----------------------------------------------------------------------------------------------
CALIFORNIA--(CONCLUDED)
$4,000 San Francisco City &
County Airport
Commission
International
Airport-Second
Series 27B (FGIC
Insured) Aaa AAA 05/01/15 5.250% $4,239,880
-----------------------------------------------------------------------------------------------
7,910 San Jose Libraries,
Parks & Public
Safety Project
(MBIA Insured) Aaa AAA 09/01/27 5.000 8,202,195
-----------------------------------------------------------------------------------------------
9,000 San Jose Unified
School District
Santa Clara
County-Election
2002-Series B
(FGIC Insured) Aaa AAA 08/01/29 5.000 9,402,120
-----------------------------------------------------------------------------------------------
3,825 Walnut Energy
Center Authority
Revenue-Series A
(AMBAC Insured) Aaa AAA 01/01/34 5.000 3,933,592
-----------------------------------------------------------------------------------------------
155,044,113
===============================================================================================
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 4,109,520
-----------------------------------------------------------------------------------------------
2,000 Metropolitan Airport
Authority Systems-
Series A (MBIA
Insured) ++ Aaa AAA 10/01/16 5.250 2,134,040
-----------------------------------------------------------------------------------------------
6,243,560
===============================================================================================
FLORIDA--12.36%
8,000 Florida State Board
of Education-Capital
Outlay-Series E
(FGIC Insured) Aaa AAA 06/01/24 5.000 8,310,480
-----------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
12
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2006
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-----------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-----------------------------------------------------------------------------------------------
FLORIDA--(CONCLUDED)
$10,220 Florida State Board
of Education-Public
Education-Series A
(FSA Insured) Aaa AAA 06/01/27 5.000% $10,592,825
-----------------------------------------------------------------------------------------------
1,060 Hillsborough County
Port District Revenue
Tampa Port Authority
Project-Series A
(MBIA Insured) ++ Aaa AAA 06/01/16 5.750 1,152,973
-----------------------------------------------------------------------------------------------
1,115 Hillsborough County
Port District Revenue
Tampa Port Authority
Project-Series A
(MBIA Insured) ++ Aaa AAA 06/01/17 5.750 1,212,797
-----------------------------------------------------------------------------------------------
1,175 Hillsborough County
Port District Revenue
Tampa Port Authority
Project-Series A
(MBIA Insured) ++ Aaa AAA 06/01/18 5.750 1,278,059
-----------------------------------------------------------------------------------------------
1,240 Hillsborough County
Port District Revenue
Tampa Port Authority
Project-Series A
(MBIA Insured) ++ Aaa AAA 06/01/19 5.750 1,348,760
-----------------------------------------------------------------------------------------------
10,000 Miami-Dade County
Aviation Revenue-
Series B (XLCA
Insured) ++ Aaa AAA 10/01/18 5.000 10,383,100
-----------------------------------------------------------------------------------------------
3,000 Miami-Dade County
Expressway Authority
Toll System Revenue-
Series B (FGIC Insured) Aaa AAA 07/01/26 5.250 3,209,730
-----------------------------------------------------------------------------------------------
37,488,724
===============================================================================================
GEORGIA--4.23%
1,015 Columbus Building
Authority Lease
Revenue-Series A
(FGIC Insured) Aaa AAA 01/01/16 5.250 1,098,484
-----------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
13
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2006
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-----------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-----------------------------------------------------------------------------------------------
GEORGIA--(CONCLUDED)
$2,000 Georgia Municipal
Electric Authority
Power Revenue-
Series A (FSA Insured) Aaa AAA 01/01/18 5.000% $2,095,460
-----------------------------------------------------------------------------------------------
15 Georgia Municipal
Electric Authority
Power Revenue-
Series Y (MBIA-
IBC Insured) Aaa AAA 01/01/10 10.000 18,214
-----------------------------------------------------------------------------------------------
4,515 Georgia Municipal
Electric Authority
Power Revenue-
Unrefunded Balance-
Series Y (FSA-CR
Insured) Aaa AAA 01/01/10 10.000 5,473,715
-----------------------------------------------------------------------------------------------
3,410 Georgia Municipal
Electric Authority
Power Revenue-
Unrefunded Balance-
Series Y (MBIA-
IBC Insured) Aaa AAA 01/01/10 10.000 4,134,080
-----------------------------------------------------------------------------------------------
12,819,953
===============================================================================================
ILLINOIS--4.13%
1,500 Chicago General
Obligation-Series A
(FSA Insured) Aaa AAA 01/01/25 5.000 1,554,465
-----------------------------------------------------------------------------------------------
2,000 Chicago General
Obligation-Series A
(FSA Insured) Aaa AAA 01/01/26 5.000 2,071,300
-----------------------------------------------------------------------------------------------
740 Chicago General
Obligation-Series A
(Pre-refunded with
U.S. Government
Securities to
01/01/11 @ 101)
(MBIA Insured) Aaa AAA 01/01/14 5.500 803,033
-----------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
14
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2006
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-----------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-----------------------------------------------------------------------------------------------
ILLINOIS--(CONCLUDED)
$260 Chicago General
Obligation-
Unrefunded
Balance-Series A
(MBIA Insured) Aaa AAA 01/01/14 5.500% $279,791
-----------------------------------------------------------------------------------------------
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 5,059,710
-----------------------------------------------------------------------------------------------
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 2,764,693
-----------------------------------------------------------------------------------------------
12,532,992
===============================================================================================
INDIANA--2.06%
1,000 Indiana University
Revenue-Student
Fee-Series O
(FGIC Insured) Aaa AAA 08/01/18 5.250 1,070,180
-----------------------------------------------------------------------------------------------
5,000 Indianapolis Airport
Authority Revenue
Refunding-Special
Facilities-Fed Ex
Corp. Project
(Federal Express
Co. Insured) ++ Baa2 BBB 01/15/17 5.100 5,171,650
-----------------------------------------------------------------------------------------------
6,241,830
===============================================================================================
--------------------------------------------------------------------------------
15
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2006
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-----------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-----------------------------------------------------------------------------------------------
MAINE--1.58%
$4,785 Maine Health &
Higher Educational
Facilities Authority
Revenue-Series A
(Escrowed to
Maturity) (FSA
Insured) NR AAA 07/01/23 5.500% $4,807,920
===============================================================================================
MASSACHUSETTS--1.72%
5,000 Massachusetts Health
& Educational
Facilities Authority
Revenue-Harvard
University-Series B Aaa AAA 07/15/32 5.000 5,230,300
===============================================================================================
MICHIGAN--1.88%
5,525 Michigan State
Hospital Finance
Authority Revenue
Refunding-Trinity
Health Credit-
Series D Aa3 AA- 08/15/25 5.000 5,699,921
===============================================================================================
MISSOURI--1.68%
1,740 St. Louis Airport
Revenue-Capital
Improvement
Project-Series A
(MBIA Insured) Aaa AAA 07/01/15 5.375 1,857,659
-----------------------------------------------------------------------------------------------
2,035 St. Louis Airport
Revenue-Capital
Improvement
Project-Series A
(MBIA Insured) Aaa AAA 07/01/16 5.375 2,171,447
-----------------------------------------------------------------------------------------------
1,000 St. Louis Airport
Revenue-Capital
Improvement
Project-Series A
(MBIA Insured) Aaa AAA 07/01/18 5.375 1,068,750
-----------------------------------------------------------------------------------------------
5,097,856
===============================================================================================
--------------------------------------------------------------------------------
16
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2006
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-----------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-----------------------------------------------------------------------------------------------
NEVADA--3.81%
$4,000 Washoe County Gas
& Water Facilities
Revenue-Sierra
Pacific Power Co.
Project-Series B
(MBIA Insured) Aaa AAA 06/01/23 5.900% $4,039,440
-----------------------------------------------------------------------------------------------
7,500 Washoe County
Water Facilities
Revenue-Sierra
Pacific Power Co.
Project-Series A
(MBIA Insured) Aaa AAA 06/01/23 5.900 7,513,275
-----------------------------------------------------------------------------------------------
11,552,715
===============================================================================================
NEW JERSEY--1.08%
3,150 New Jersey Economic
Development
Authority
Revenue-Cigarette
Tax (FGIC Insured) Aaa AAA 06/15/09 5.000 3,265,007
===============================================================================================
NEW MEXICO--2.85%
4,130 University of New
Mexico
Revenue-Hospital
Meeting (FSA-FHA
Insured) Aaa AAA 01/01/23 5.000 4,270,709
-----------------------------------------------------------------------------------------------
4,230 University of
New Mexico
Revenue-Hospital
Meeting (FSA-FHA
Insured) Aaa AAA 07/01/23 5.000 4,374,116
-----------------------------------------------------------------------------------------------
8,644,825
===============================================================================================
NEW YORK--19.87%
3,000 New York State
Dormitory Authority
Revenue-Sloan
Kettering
Center-Series 1
(MBIA Insured) Aaa AAA 07/01/16 5.000 3,153,270
-----------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
17
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2006
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-----------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-----------------------------------------------------------------------------------------------
NEW YORK--(CONCLUDED)
$2,000 Long Island Power
Authority Electric
System Revenue-
Series A (FSA
Insured) Aaa AAA 12/01/22 5.125% $2,075,480
-----------------------------------------------------------------------------------------------
5,650 Metropolitan
Transportation
Authority Dedicated
Tax Fund-Series A
(FSA Insured) Aaa AAA 11/15/24 5.250 6,034,370
-----------------------------------------------------------------------------------------------
4,000 Metropolitan
Transportation
Authority
Revenue-Series A
(FGIC Insured) Aaa AAA 11/15/17 5.000 4,231,280
-----------------------------------------------------------------------------------------------
5,000 New York City
General
Obligation-Series G
(AMBAC Insured) Aaa AAA 08/01/17 5.000 5,316,750
-----------------------------------------------------------------------------------------------
6,000 New York City
General
Obligation-Series O A1 A+ 06/01/24 5.000 6,213,840
-----------------------------------------------------------------------------------------------
5,000 New York City Industrial
Development
Agency Special
Facilities
Revenue-Terminal
One Group
Association
Project ++ A3 BBB+ 01/01/15 5.500 5,339,350
-----------------------------------------------------------------------------------------------
6,685 New York City Industrial
Development Agency
Special Facilities
Revenue-Terminal
One Group
Association
Project ++ A3 BBB+ 01/01/16 5.500 7,152,950
-----------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
18
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2006
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
--------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
--------------------------------------------------------------------------------------------------------------
NEW YORK--(CONTINUED)
$2,750 New York City
Industrial Development
Agency Special
Facilities Revenue-
Terminal One Group
Association
Project ++ A3 BBB+ 01/01/18 5.500% [double dagger] $2,929,135
--------------------------------------------------------------------------------------------------------------
7,000 New York City
Municipal Water
Finance Authority
Water & Sewer
Systems Revenue-
Series C
(MBIA Insured) Aaa AAA 06/15/26 5.000 7,314,650
--------------------------------------------------------------------------------------------------------------
10,080 New York City
Municipal Water
Finance Authority
Water & Sewer
Systems Revenue-
Series C
(MBIA Insured) Aaa AAA 06/15/27 5.000 10,525,334
--------------------------------------------------------------------------------------------------------------
60,286,409
==============================================================================================================
NORTH CAROLINA--2.10%
3,505 Charlotte Certificates
of Participation
Refunding-
Convention Facilities
Project-Series A
(MBIA Insured) Aaa AAA 08/01/12 5.000 3,704,224
--------------------------------------------------------------------------------------------------------------
2,500 North Carolina Eastern
Municipal Power
Agency Power
Systems Revenue
Refunding-Series A Baa2 BBB 01/01/12 5.500 2,673,550
--------------------------------------------------------------------------------------------------------------
6,377,774
==============================================================================================================
--------------------------------------------------------------------------------
19
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2006
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-------------------------------------------------------------------------------------------------
OHIO--1.74%
$5,000 Cleveland Airport
Systems Revenue-
Series A (FSA Insured) Aaa AAA 01/01/14 5.250% $5,265,400
=================================================================================================
PENNSYLVANIA--5.31%
15,390 Allegheny County
Sanitation Authority
Sewer Revenue
Refunding-Series A
(MBIA Insured) Aaa AAA 12/01/23 5.000 16,122,102
=================================================================================================
SOUTH CAROLINA--8.14%
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 2,649,150
-------------------------------------------------------------------------------------------------
1,000 Myrtle Beach Water &
Sewer Revenue
System (FGIC Insured) Aaa AAA 03/01/15 5.375 1,080,580
-------------------------------------------------------------------------------------------------
20,000 South Carolina Public
Service Authority
Revenue-Santee
Cooper-Series A
(MBIA Insured) Aaa AAA 01/01/25 5.000 20,958,000
-------------------------------------------------------------------------------------------------
24,687,730
=================================================================================================
TEXAS--21.09%
7,015 Austin Water &
Wastewater System
Revenue Refunding
(MBIA Insured) Aaa AAA 05/15/29 5.000 7,280,588
-------------------------------------------------------------------------------------------------
5,170 Fort Bend Independent
School District
Refunding-Series A
(PSF-GTD) NR AAA 08/15/26 5.250 5,497,054
-------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
20
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2006
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-------------------------------------------------------------------------------------------------
TEXAS--(CONTINUED)
$13,500 Houston Utility
Systems Revenue
Refunding-First
Lien-Series A
(FGIC Insured) Aaa AAA 05/15/23 5.250% $14,370,750
-------------------------------------------------------------------------------------------------
7,000 Houston Utility Systems
Revenue Refunding-
First Lien-Series A
(MBIA Insured) Aaa AAA 05/15/25 5.250 7,441,630
-------------------------------------------------------------------------------------------------
6,000 Humble Independent
School District-
School Building
(PSF-GTD) Aaa AAA 02/15/28 5.000 6,236,700
-------------------------------------------------------------------------------------------------
2,000 Irving Independent
School District
Refunding-Capital
Appreciation-Series A
(PSF-GTD) + Aaa AAA 02/15/12 4.960# 1,580,440
-------------------------------------------------------------------------------------------------
2,000 Jefferson County
General Obligation
(FGIC Insured) Aaa AAA 08/01/20 5.250 2,134,160
-------------------------------------------------------------------------------------------------
1,065 San Antonio Refunding-
General Improvement
Forward-Series 2006
(FGIC Insured) (a) Aaa AAA 08/01/12 5.250 1,143,608
-------------------------------------------------------------------------------------------------
1,420 San Antonio Refunding-
General Improvement
Forward-Series 2006
(FGIC Insured) (a) Aaa AAA 08/01/13 5.250 1,532,279
-------------------------------------------------------------------------------------------------
155 San Antonio Water
Revenue (MBIA
Insured) Aaa AAA 05/15/16 6.000 159,134
-------------------------------------------------------------------------------------------------
720 San Antonio Water
Revenue (Pre-
refunded with U.S.
Government
Securities to
05/15/07 @ 100)
(MBIA Insured) Aaa AAA 05/15/16 6.000 803,678
-------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
21
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2006
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-------------------------------------------------------------------------------------------------
TEXAS--(CONCLUDED)
$6,110 Texas A&M
University Fund Aaa NR 07/01/17 5.250% $6,526,702
-------------------------------------------------------------------------------------------------
60 Williamson County
General Obligation-
Unrefunded Balance
(FSA Insured) Aaa AAA 02/15/17 5.500 64,083
-------------------------------------------------------------------------------------------------
9,000 Wylie Independent
School District
Refunding
(PSF-GTD) Aaa AAA 08/15/30 5.000 9,199,260
-------------------------------------------------------------------------------------------------
63,970,066
=================================================================================================
WASHINGTON--5.14%
5,210 Washington State
Public Power
Supply Revenue
Refunding-Systems
Nuclear Project
No. 2-Series A
(Escrowed to
Maturity) (MBIA
Insured) Aaa AAA 07/01/11 6.550# 4,251,568
-------------------------------------------------------------------------------------------------
2,220 Cowlitz County School
District No. 458 Kelso
(FSA Insured) Aaa NR 12/01/15 5.750 2,436,428
-------------------------------------------------------------------------------------------------
1,000 Cowlitz County School
District No. 458
Kelso (FSA Insured) Aaa NR 12/01/18 5.750 1,095,770
-------------------------------------------------------------------------------------------------
2,000 Energy Northwest
Electric Revenue-
Columbia Generator
Station-Series F
(MBIA Insured) Aaa AAA 07/01/18 5.000 2,087,540
-------------------------------------------------------------------------------------------------
2,175 Energy Northwest
Electric Revenue-
Project No. 1-
Series A (MBIA
Insured) Aaa AAA 07/01/15 5.750 2,382,865
-------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
22
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2006
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONCLUDED)
-------------------------------------------------------------------------------------------------
WASHINGTON--(CONCLUDED)
$3,230 Spokane County
Refunding-Series B
(MBIA Insured) Aaa AAA 12/01/10 5.000% $3,323,767
-------------------------------------------------------------------------------------------------
15,577,938
=================================================================================================
WISCONSIN--0.40%
1,105 Ladysmith-Hawkins
School District
Refunding (FGIC
Insured) Aaa NR 04/01/20 5.500 1,224,174
-------------------------------------------------------------------------------------------------
Total Long-Term Municipal Bonds (cost--$467,961,497) 468,181,309
=================================================================================================
SHORT-TERM MUNICIPAL NOTES--13.47%
-------------------------------------------------------------------------------------------------
MISSOURI--3.30%
10,000 Missouri Development
Finance Board
Cultural Facilities
Revenue-Nelson
Gallery Foundation-
Series B (MBIA
Insured) VMIG-1 A-1+ 04/03/06 3.100* 10,000,000
=================================================================================================
NEW YORK--3.99%
4,000 New York City
General Obligation-
Series B-
Subseries B-4
(MBIA Insured) VMIG-1 A-1+ 04/03/06 3.100* 4,000,000
-------------------------------------------------------------------------------------------------
8,100 New York City
General Obligation-
Series H-
Subseries-H2
(MBIA Insured) VMIG-1 A-1 04/03/06 3.180* 8,100,000
-------------------------------------------------------------------------------------------------
12,100,000
=================================================================================================
OKLAHOMA--1.22%
3,695 Oklahoma State
Industrial Authority
Revenue Refunding-
Integris Baptist-
Series B (MBIA
Insured) VMIG-1 A-1+ 04/03/06 3.120* 3,695,000
-------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
23
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS -- MARCH 31, 2006
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-----------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL NOTES--(CONCLUDED)
-----------------------------------------------------------------------------------------------
TEXAS--4.96%
$15,000 Texas State
Tax & Revenue
Anticipation Notes MIG1 SP-1+ 08/31/06 4.500% $15,054,600
===============================================================================================
Total Short-Term Municipal Notes (cost--$40,888,310) 40,849,600
===============================================================================================
Total Investments (cost--$508,849,807)--167.82% 509,030,909
-----------------------------------------------------------------------------------------------
Other assets in excess of liabilities--1.41% 4,283,609
-----------------------------------------------------------------------------------------------
Liquidation value of auction preferred shares--(69.23)% (210,000,000)
-----------------------------------------------------------------------------------------------
Net Assets applicable to common shareholders--100.00% $303,314,518
===============================================================================================
* 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, 2006.
# Interest rate shown reflects yield to maturity at purchase date
for zero coupon bonds.
+ Partial amount pledged as collateral for futures transactions.
++ Security subject to Alternative Minimum Tax.
[double dagger] Floating rate security. The interest rate shown is the current
rate as of March 31, 2006.
(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
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
XLCA -- XL Capital Assurance
FUTURES CONTRACTS
UNREALIZED
NUMBER OF IN EXPIRATION APPRECIATION
CONTRACTS CONTRACTS TO RECEIVE EXCHANGE FOR DATES (DEPRECIATION)
---------------------------------------------------------------------------------------------
U.S. Treasury Bond
50 20 Year Futures $5,655,669 June 2006 $(197,856)
---------------------------------------------------------------------------------------------
CONTRACTS TO DELIVER
---------------------------------------------------------------------------------------------
U.S. Treasury Note
130 10 Year Futures 14,029,324 June 2006 198,542
---------------------------------------------------------------------------------------------
$686
=============================================================================================
See accompanying notes to financial statements
--------------------------------------------------------------------------------
24
INSURED MUNICIPAL INCOME FUND INC.
STATEMENT OF ASSETS AND LIABILITIES -- MARCH 31, 2006
ASSETS:
Investments in securities, at value (cost-$508,849,807) $509,030,909
-----------------------------------------------------------------------------------
Cash 84,330
-----------------------------------------------------------------------------------
Receivable for interest 6,869,587
-----------------------------------------------------------------------------------
Receivable for interest rate swaps, net (cost-$0) 413,608
-----------------------------------------------------------------------------------
Other assets 37,889
-----------------------------------------------------------------------------------
Total assets 516,436,323
-----------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 2,646,078
-----------------------------------------------------------------------------------
Payable to investment advisor and administrator 263,496
-----------------------------------------------------------------------------------
Dividends payable to auction preferred shareholders 59,393
-----------------------------------------------------------------------------------
Payable for variation margin 11,719
-----------------------------------------------------------------------------------
Accrued expenses and other liabilities 141,119
-----------------------------------------------------------------------------------
Total liabilities 3,121,805
-----------------------------------------------------------------------------------
Auction preferred shares series A, B, C, D, E & F-4,200
non-participating shares authorized, issued and
outstanding; $0.001 par value per auction preferred
share; $50,000 liquidation value per auction preferred share 210,000,000
-----------------------------------------------------------------------------------
Net assets applicable to common shareholders $303,314,518
-----------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Common Stock-$0.001 par value per common share;
199,997,000 shares authorized; 20,628,363 shares
issued and outstanding $301,976,191
-----------------------------------------------------------------------------------
Undistributed net investment income 483,299
-----------------------------------------------------------------------------------
Accumulated net realized gain from investment activities and futures 259,632
-----------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures and swaps 595,396
-----------------------------------------------------------------------------------
Net assets applicable to common shareholders $303,314,518
-----------------------------------------------------------------------------------
Net asset value per common share ($303,314,518
applicable to 20,628,363 common shares outstanding) $14.70
===================================================================================
See accompanying notes to financial statements
--------------------------------------------------------------------------------
25
INSURED MUNICIPAL INCOME FUND INC.
STATEMENT OF OPERATIONS
For the
Year Ended
March 31, 2006
---------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $22,838,010
---------------------------------------------------------------------------------------
EXPENSES:
Investment advisory and administration fees 4,688,022
---------------------------------------------------------------------------------------
Auction preferred shares expenses 606,818
---------------------------------------------------------------------------------------
Custody and accounting fees 295,374
---------------------------------------------------------------------------------------
Professional fees 113,871
---------------------------------------------------------------------------------------
Reports and notices to shareholders 84,915
---------------------------------------------------------------------------------------
Stock exchange listing fees 27,864
---------------------------------------------------------------------------------------
Transfer agency fees 24,680
---------------------------------------------------------------------------------------
Insurance fees 24,654
---------------------------------------------------------------------------------------
Directors' fees 12,742
---------------------------------------------------------------------------------------
Other expenses 19,356
---------------------------------------------------------------------------------------
5,898,296
---------------------------------------------------------------------------------------
Less: Fee waivers by investment advisor and administrator (1,562,674)
---------------------------------------------------------------------------------------
Net expenses 4,335,622
---------------------------------------------------------------------------------------
Net investment income 18,502,388
---------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gains from:
Investments 5,451,649
---------------------------------------------------------------------------------------
Futures 1,477,490
---------------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation of:
Investments (6,355,738)
---------------------------------------------------------------------------------------
Futures (341,956)
---------------------------------------------------------------------------------------
Swaps 413,608
---------------------------------------------------------------------------------------
Net realized and unrealized gain from investment activities 645,053
---------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS PAID TO AUCTION PREFERRED SHAREHOLDERS FROM:
Net investment income (4,609,332)
---------------------------------------------------------------------------------------
Net realized gain from investment activities (1,383,754)
---------------------------------------------------------------------------------------
Total dividends and distributions paid to auction preferred shareholders (5,993,086)
---------------------------------------------------------------------------------------
Net increase in net assets applicable to common shareholders resulting
from operations $13,154,355
=======================================================================================
See accompanying notes to financial statements
--------------------------------------------------------------------------------
26
INSURED MUNICIPAL INCOME FUND INC.
STATEMENT OF CHANGES IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
For the Years Ended
March 31,
--------------------------------
2006 2005
--------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $18,502,388 $17,183,245
--------------------------------------------------------------------------------------------
Net realized gains from investment activites and futures 6,929,139 2,287,506
--------------------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation of
investments, futures and swaps (6,284,086) (8,902,767)
--------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS PAID TO AUCTION
PREFERRED SHAREHOLDERS FROM:
Net investment income (4,609,332) (2,812,124)
--------------------------------------------------------------------------------------------
Net realized gains from investment activities (1,383,754) (194,876)
--------------------------------------------------------------------------------------------
Total dividends and distributions paid to auction
preferred shareholders (5,993,086) (3,007,000)
--------------------------------------------------------------------------------------------
Net increase in net assets applicable to common
shareholders resulting from operations 13,154,355 7,560,984
--------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS PAID TO
COMMON SHAREHOLDERS FROM:
Net investment income (13,490,950) (15,677,560)
--------------------------------------------------------------------------------------------
Net realized gains from investment activities (4,381,465) (1,419,231)
--------------------------------------------------------------------------------------------
Total dividends and distributions paid to common
shareholders (17,872,415) (17,096,791)
--------------------------------------------------------------------------------------------
Net decrease in net assets applicable to common
shareholders (4,718,060) (9,535,807)
--------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of year 308,032,578 317,568,385
--------------------------------------------------------------------------------------------
End of year $303,314,518 $308,032,578
============================================================================================
Accumulated undistributed net investment income $483,299 $470,621
============================================================================================
See accompanying notes to financial statements
--------------------------------------------------------------------------------
27
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 its net asset value based on the
current market value, where available, for its portfolio securities. The Fund
normally obtains market values for its securities from independent pricing
sources and broker-dealers. Independent pricing sources may use 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"). Various factors may be reviewed in order to make a good
faith determination of a security's fair value. These factors may include, but
are not limited to, the type and cost of the security; contractual or legal
restrictions on resale of the security; relevant financial or business
developments of the issuer; actively traded similar or related securities;
conversion or exchange rights on the security;
--------------------------------------------------------------------------------
28
INSURED MUNICIPAL INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS
related corporate actions; and changes in overall market conditions. If events
occur that materially affect the value of securities (particularly non-U.S.
securities) between the close of trading in those securities and the close of
regular trading on the New York Stock Exchange, the securities are fair valued.
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
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 separate account with the futures broker through which
the transaction was effected an amount of cash and/or securities 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 and
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 separate 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. The separate account
--------------------------------------------------------------------------------
29
INSURED MUNICIPAL INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS
for margin will be maintained at the futures counterparty and may be subject to
risks or delays if the counterparty becomes insolvent.
INTEREST RATE SWAP AGREEMENTS--The Fund may enter into interest rate swap
agreements for hedging purposes and to seek to increase the return of the Fund.
This type of swap is an agreement that obligates two parties to exchange a
series of cash flows at specified intervals based upon or calculated by
reference to a specified interest rate(s) for a specified amount. The payment
flows are usually netted against each other, with the difference being paid by
one party to the other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the contract. The loss incurred by the
failure of a counterparty is generally limited to the net interest payment to be
received by the Fund. Therefore, the Fund considers the creditworthiness of the
counterparty to a swap contract in evaluating potential credit risk.
The Fund accrues for interim payments on swap contracts on a daily basis, with
the net amount recorded within unrealized appreciation/depreciation on swap
contracts in the Statement of Assets and Liabilities. Once interim payments are
settled in cash, the net amount is recorded as realized gain/loss on swaps, in
addition to realized gain/loss recorded upon the termination of swap contracts
in the Statement of Operations. Fluctuations in the value of swap contracts are
recorded for financial statement purposes as unrealized appreciation or
depreciation of swaps.
At March 31, 2006, the Fund had a forward interest rate swap whose effective
date of the exchange of cash flows is May 22, 2006 with the following terms:
RATE TYPE
-------------------------------
NOTIONAL
AMOUNT TERMINATION PAYMENTS MADE PAYMENTS RECEIVED UNREALIZED
(000) DATE BY THE FUND BY THE FUND APPRECIATION
---------------------------------------------------------------------------------
USD 13,000 05/22/26 3.991% BMA Municipal Swap Index $413,608
=================================================================================
BMA Bond Market Association
USD U.S. Dollars
DIVIDENDS AND DISTRIBUTIONS--The Fund intends to pay monthly dividends to common
shareholders at a rate level 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
--------------------------------------------------------------------------------
30
INSURED MUNICIPAL INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS
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.
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 had approved an investment advisory and administration contract
("Advisory Contract") with UBS Global Asset Management (US) Inc. ("UBS Global
AM"), under which UBS Global AM had served 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 and Basel, Switzerland and operations in many areas
of the financial services industry. In accordance with the Advisory Contract,
the Fund paid UBS Global AM an investment advisory and administration fee, which
was 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. UBS Global AM had agreed to waive 0.30% of the advisory and
administration fee, so that the Fund's effective fee was 0.60% of average weekly
net assets applicable to holders of common and auction preferred shares. This
waiver continued indefinitely unless the Board agreed to any change. At March
31, 2006, the Fund owed UBS Global AM $263,496, which is composed of $395,243 of
investment advisory and administration fees less fees waived of $131,747. For
the year ended March 31, 2006, UBS Global AM waived $1,562,674 of investment
advisory and administration fees from the Fund. (After the end of the fiscal
period, the Advisory Contract was transferred to an affiliate of UBS Global AM
as explained in the Subsequent Event note further below.)
--------------------------------------------------------------------------------
31
INSURED MUNICIPAL INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS
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 him 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.
Fund transactions are executed through Morgan Stanley based on that firm's
ability to provide best execution of the transactions. During the year ended
March 31, 2006, the Fund purchased and sold certain securities (e.g., fixed
income securities) in principal trades with Morgan Stanley having an aggregate
value of $106,633,007. Morgan Stanley received compensation in connection with
these trades, which may have been in the form of a "mark-up" or "mark-down" of
the price of the securities, a fee from the issuer for maintaining a commercial
paper program, or some other form of compensation. 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. In addition, Morgan Stanley may participate as
a broker-dealer in auctions for the Fund's Auction Preferred Shares and receive
compensation therefore. Amounts received by Morgan Stanley, if any, will vary
depending upon that firm's participation in an auction, and such amounts are
calculated and paid by the auction agent from money provided by the Fund.
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 a liquidation preference of $50,000 per share plus an amount
equal to accumulated but unpaid dividends upon liquidation.
Dividends and/or capital gain distributions, which are cumulative, are generally
reset every 7 days for each Series of APS. Dividend rates ranged from 1.890% to
3.250% and capital gain distribution rates ranged from 2.000% to 5.250% for the
year ended March 31, 2006.
The Fund is subject to certain restrictions relating to the APS. Failure to
comply with these restrictions could preclude the Fund from declaring any
--------------------------------------------------------------------------------
32
INSURED MUNICIPAL INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS
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.
PURCHASES AND SALES OF SECURITIES
For the year ended March 31, 2006, aggregate purchases and sales of portfolio
securities, excluding short-term securities, were $301,019,203 and $275,669,131,
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
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,
2006 and March 31, 2005 were as follows:
DISTRIBUTIONS PAID FROM: 2006 2005
-------------------------------------------------------------------------------------
Tax-exempt income $18,093,862 $18,116,461
-------------------------------------------------------------------------------------
Ordinary income 763,385 -
-------------------------------------------------------------------------------------
Net long-term capital gains 5,008,254 1,987,330
-------------------------------------------------------------------------------------
Total distributions paid $23,865,501 $20,103,791
=====================================================================================
At March 31, 2006, the components of accumulated earnings on a tax basis were as
follows:
Undistributed tax-exempt income $349,964
----------------------------------------------------------------------------------------
Undistributed long-term capital gains 1,061,574
----------------------------------------------------------------------------------------
Net unrealized depreciation of investments, futures and swaps (13,818)
----------------------------------------------------------------------------------------
Total accumulated earnings $1,397,720
----------------------------------------------------------------------------------------
The differences between book-basis and tax-basis unrealized appreciation/
depreciation of investments, futures and swaps is attributable to the
--------------------------------------------------------------------------------
33
INSURED MUNICIPAL INCOME FUND INC.
NOTES TO FINANCIAL STATEMENTS
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 depreciation of investments at March 31, 2006 were as follows:
Tax cost of investments $509,458,335
-----------------------------------------------------------------------------------------
Gross unrealized appreciation 2,530,289
-----------------------------------------------------------------------------------------
Gross unrealized depreciation (2,957,715)
-----------------------------------------------------------------------------------------
Net unrealized depreciation $(427,426)
-----------------------------------------------------------------------------------------
To reflect reclassifications arising from permanent "book/tax" differences for
the year ended March 31, 2006, the Fund's undistributed net investment income
was decreased by $389,428 and accumulated net realized loss from investment
activities and futures was decreased by $389,428.
These differences are primarily due to premium amortization adjustments.
SUBSEQUENT EVENT
After the end of the fiscal period covered by this report, the investment
advisory and administration contract (the "Advisory and Administration
Contract") between the Fund and UBS Global AM was transferred to UBS Global
Asset Management (Americas) Inc. ("UBS Global AM (Americas)"), a sister company
of UBS Global AM.
In connection with an internal reorganization involving UBS Global AM and UBS
Global AM (Americas), the Fund's Board of Directors approved the transfer of the
Advisory and Administration Contract from UBS Global AM to UBS Global AM
(Americas) effective April 1, 2006. All of the personnel of UBS Global AM who
previously provided investment advisory services to the Fund continue to provide
investment advisory services to the Fund as employees of UBS Global AM
(Americas). UBS Global AM (Americas) has the same contractual rights and
responsibilities under the Advisory and Administration Contract as those
previously held by UBS Global AM. The related fee waiver arrangement disclosed
above continues in effect, but now with UBS Global AM (Americas). UBS Global AM
and UBS Global AM (Americas) are both indirect wholly owned subsidiaries of UBS
AG.
--------------------------------------------------------------------------------
34
(This page has been left blank intentionally)
--------------------------------------------------------------------------------
35
INSURED MUNICIPAL INCOME FUND INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout each year is
presented below:
For the
Year Ended
March 31, 2006
--------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $14.93
--------------------------------------------------------------------------------------------------
Net investment income 0.90
--------------------------------------------------------------------------------------------------
Net realized and unrealized gains (losses) from investment activities 0.02
--------------------------------------------------------------------------------------------------
Common share equivalent of dividends and distributions
paid to auction preferred shareholders from:
Net investment income (0.22)
--------------------------------------------------------------------------------------------------
Net realized gains from investment activities (0.07)
--------------------------------------------------------------------------------------------------
Total dividends and distributions paid to auction preferred shareholders (0.29)
--------------------------------------------------------------------------------------------------
Net increase from operations 0.63
--------------------------------------------------------------------------------------------------
Dividends and distributions paid to common shareholders from:
Net investment income (0.65)
--------------------------------------------------------------------------------------------------
Net realized gains from investment activities (0.21)
--------------------------------------------------------------------------------------------------
Total dividends and distributions paid to common shareholders (0.86)
--------------------------------------------------------------------------------------------------
Auction preferred shares offering expenses --
--------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $14.70
--------------------------------------------------------------------------------------------------
MARKET VALUE, END OF YEAR $13.02
--------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN(1) 9.51%
--------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS ATTRIBUTABLE TO COMMON SHARES:
Total expenses, net of fee waivers by advisor 1.39%
--------------------------------------------------------------------------------------------------
Total expenses, before fee waivers by advisor 1.90%
--------------------------------------------------------------------------------------------------
Net investment income before auction preferred shares dividends 5.95%
--------------------------------------------------------------------------------------------------
Auction preferred shares dividends from net investment income 1.48%
--------------------------------------------------------------------------------------------------
Net investment income available to common shareholders,
net of fee waivers by advisor 4.47%
--------------------------------------------------------------------------------------------------
Net investment income available to common shareholders,
before fee waivers by advisor 3.96%
--------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets applicable to common shareholders, end of year (000's) $303,315
--------------------------------------------------------------------------------------------------
Portfolio turnover 57%
--------------------------------------------------------------------------------------------------
Asset coverage per share of auction preferred shares, end of year $122,218
==================================================================================================
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.
--------------------------------------------------------------------------------
36
INSURED MUNICIPAL INCOME FUND INC.
For the Years Ended March 31,
----------------------------------------------------------------------------
2005 2004 2003 2002
----------------------------------------------------------------------------
$15.39 $15.76 $15.15 $15.30
----------------------------------------------------------------------------
0.83 0.84 0.97 1.01
----------------------------------------------------------------------------
(0.31) 0.00# 0.58 (0.26)
----------------------------------------------------------------------------
(0.14) (0.07) (0.10) (0.17)
----------------------------------------------------------------------------
(0.01) (0.02) -- --
----------------------------------------------------------------------------
(0.15) (0.09) (0.10) (0.17)
----------------------------------------------------------------------------
0.37 0.75 1.45 0.58
----------------------------------------------------------------------------
(0.76) (0.84) (0.84) (0.73)
----------------------------------------------------------------------------
(0.07) (0.24) -- --
----------------------------------------------------------------------------
(0.83) (1.08) (0.84) (0.73)
----------------------------------------------------------------------------
-- (0.04) -- --
----------------------------------------------------------------------------
$14.93 $15.39 $15.76 $15.15
----------------------------------------------------------------------------
$12.71 $14.48 $13.98 $13.42
----------------------------------------------------------------------------
(6.55)% 11.75% 10.61% 8.04%
----------------------------------------------------------------------------
1.51% 1.35% 1.41% 1.42%
----------------------------------------------------------------------------
1.96% 1.62% 1.60% 1.61%
----------------------------------------------------------------------------
5.52% 5.42% 6.23% 6.57%
----------------------------------------------------------------------------
0.90% 0.44% 0.61% 1.11%
----------------------------------------------------------------------------
4.62% 4.98% 5.62% 5.46%
----------------------------------------------------------------------------
4.17% 4.71% 5.43% 5.27%
----------------------------------------------------------------------------
$308,033 $317,568 $325,060 $312,552
----------------------------------------------------------------------------
50% 37% 24% 14%
----------------------------------------------------------------------------
$123,341 $125,612 $158,353 $154,184
============================================================================
--------------------------------------------------------------------------------
37
INSURED MUNICIPAL INCOME FUND INC.
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, 2006, 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 audits 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 and financial highlights, assessing the accounting principles used
and significant estimates made by management and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of March 31, 2006, by correspondence with the custodian and
brokers. 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, 2006, 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 12, 2006
--------------------------------------------------------------------------------
38
INSURED MUNICIPAL INCOME FUND INC.
GENERAL INFORMATION (UNAUDITED)
THE FUND
Insured Municipal Income Fund Inc. (the "Fund") is a diversified, closed-end
management investment company whose shares trade on the New 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 NYSE trading symbol is "PIF." Comparative net asset value
and market price information about the Fund is available weekly in various
publications. Effective as of April 1, 2006, the Fund's investment advisor and
administrator is UBS Global Asset Management (Americas) Inc., an indirect wholly
owned asset management subsidiary of UBS AG.
SHAREHOLDER MEETING INFORMATION
A special meeting of shareholders of the Fund was held on February 3, 2006.
At the meeting, Richard Q. Armstrong, David J. Beaubien, Alan S. Bernikow,
Richard R. Burt, Meyer Feldberg, Bernard B.Garil and Heather R. Higgins were
elected to serve as directors until the next annual meeting of shareholders, or
until their successors are duly elected and qualified or until they retire,
resign or are earlier removed. The shares were voted as indicated below:
COMMON STOCK AND APS SHARES VOTING AS A SINGLE CLASS:
SHARES
TO VOTE FOR OR WITHHOLD AUTHORITY SHARES WITHHOLD
IN THE ELECTION OF: VOTED FOR AUTHORITY
---------------------------------------------------------------------------------
Richard Q. Armstrong 18,347,404.829 908,558.037
---------------------------------------------------------------------------------
David J. Beaubien 18,340,901.829 915,061.037
---------------------------------------------------------------------------------
Alan S. Bernikow 18,370,352.829 885,610.037
---------------------------------------------------------------------------------
Bernard B.Garil 18,384,861.829 871,100.037
---------------------------------------------------------------------------------
Heather R. Higgins 18,375,421.829 880,541.037
---------------------------------------------------------------------------------
AUCTION PREFERRED SHARES:
SHARES
TO VOTE FOR OR WITHHOLD AUTHORITY SHARES WITHHOLD
IN THE ELECTION OF: VOTED FOR AUTHORITY
---------------------------------------------------------------------------------
Richard R. Burt 3,710 1
---------------------------------------------------------------------------------
Meyer Feldberg 3,710 1
---------------------------------------------------------------------------------
The Fund is not aware of any broker non-votes. (Broker non-votes are shares held
in street name for which the broker indicates that instructions have not been
received from the beneficial owners or other persons entitled to vote and for
which the broker does not have discretionary voting authority.)
--------------------------------------------------------------------------------
39
INSURED MUNICIPAL INCOME FUND INC.
GENERAL INFORMATION (UNAUDITED)
PROXY VOTING POLICIES, PROCEDURES AND RECORD
You may obtain a description of the Fund's (1) proxy voting policies, (2) proxy
voting procedures and (3) information regarding how the Fund voted any proxies
related to portfolio securities during the 12-month period ended June 30, 2005,
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 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
--------------------------------------------------------------------------------
40
INSURED MUNICIPAL INCOME FUND INC.
GENERAL INFORMATION (UNAUDITED)
DIVIDEND REINVESTMENT PLAN (CONCLUDED)
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.
--------------------------------------------------------------------------------
41
INSURED MUNICIPAL INCOME FUND INC.
BOARD APPROVAL OF INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT (UNAUDITED)
BACKGROUND--At a meeting of the board of Insured Municipal Income Fund Inc. (the
"Fund") on February 8, 2006, the members of the board, including the board
members who are not "interested persons" of the Fund ("Independent Directors"),
as defined in the Investment Company Act of 1940, as amended, considered and
approved the transfer of the current Investment Advisory and Administration
Agreement between the Fund and UBS Global Asset Management (US) Inc. ("UBS
Global AM") to UBS Global Asset Management (Americas) Inc. ("UBS Global
Americas"), an affiliate of UBS Global AM. The board received information and
materials about the proposed transfer both at its November 2005 meeting and at
its February 2006 meeting. In considering the approval of the transfer of the
Investment Advisory and Administration Agreement (such transfer referred to as
the "New Investment Advisory and Administration Agreement"), the board reviewed
a memorandum from UBS Global AM explaining the reasons for the proposed
transfer, including that the transfer would result in management efficiencies
and eliminate the duplication of functions that had resulted from having two
registered investment advisors, UBS Global AM and UBS Global Americas, providing
investment advisory services to the UBS funds. The board also reviewed material
provided by UBS Global AM on UBS Global Americas, including that the current
portfolio manager for the Fund would not change as a result of the transfer from
UBS Global AM to UBS Global Americas. The board also noted management's
explanation that any expenses resulting from the transfer would be borne by UBS
Global AM, and not the Fund. The board also received and reviewed a draft of an
opinion to be provided by Dechert LLP, counsel to the Fund, that the proposed
transfer would not be considered an "assignment" of the existing investment
advisory contract under the Investment Company Act of 1940, as amended, because
(1) there would be no change of actual control of the investment advisor to the
Fund; (2) there would be no change of management of the investment advisor to
the Fund; (3) the nature, quality and extent of the investment advisory services
provided by UBS Global AM under the current Investment Advisory and
Administration Agreement would not change as a result of the transfer; (4) the
transfer would not result in any change in the fundamental investment processes,
investment strategies or investment techniques currently employed by UBS Global
AM portfolio managers or other investment professionals in providing services to
the Fund; and (5) there would be no change to any of the material terms of the
Investment Advisory and Administration Agreements as a result of the transfer.
The board took note of its knowledge of UBS Global AM and its
--------------------------------------------------------------------------------
42
INSURED MUNICIPAL INCOME FUND INC.
BOARD APPROVAL OF INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT (UNAUDITED)
affiliates, including UBS Global Americas, and the current Investment Advisory
and Administration Agreement for the Fund, including the extensive materials it
had reviewed at its annual contract renewal meeting in the summer of 2005 for
the Fund, and noted that it had at that time received a memorandum from its
independent legal counsel discussing, among other things, the duties of board
members in considering approval of advisory and administration agreements.
In its consideration of the approval of the New Investment Advisory and
Administration Agreement, the board considered the following factors:
NATURE, EXTENT AND QUALITY OF THE SERVICES UNDER THE NEW INVESTMENT ADVISORY AND
ADMINISTRATION AGREEMENT--The board took note that at its last annual contract
renewal meeting for the Fund, in connection with its review of the Fund's
advisory and distribution agreements, it had received and considered extensive
information regarding the nature, extent and quality of management services
generally provided to the Fund by UBS Global AM under the Investment Advisory
and Administration Agreement, and a description of the administrative and other
services rendered to the Fund and its shareholders by UBS Global AM and UBS
Global AM's role in coordinating providers of other services to the Fund,
including custody, accounting and transfer agency services. The board
considered management's explanation that UBS Global Americas would provide
identical services under the New Investment Advisory and Administration
Agreement as were provided by UBS Global AM under the current Investment
Advisory and Administration Agreement. The board's evaluation of the services to
be provided by UBS Global Americas to the Fund took into account the board's
knowledge and familiarity gained as board members of funds in the UBS New York
fund complex, including the scope and quality of investment management and other
capabilities and the quality of administrative and other services, and
considered that based on the materials presented to them these services would
remain the same. The board also considered, based on its knowledge of UBS Global
AM and UBS Global Americas, the financial resources available to UBS Global
Americas and its parent organization, UBS AG, one of the leading financial
services companies in the world.
The board concluded that, overall, it was satisfied with the nature, extent and
quality of services expected to be provided to the Fund under the New Investment
Advisory and Administration Agreement.
--------------------------------------------------------------------------------
43
INSURED MUNICIPAL INCOME FUND INC.
BOARD APPROVAL OF INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT (UNAUDITED)
MANAGEMENT FEES--The board noted that the current contractual management fee for
the Fund under the current Investment Advisory and Administration Agreement was
not proposed to be changed under the New Investment Advisory and Administration
Agreement. The board also considered that at its most recent annual contract
renewal meeting during the summer of 2005 it had received and reviewed
information on the contractual management fee payable by the Fund to UBS Global
AM, including information of management fees paid by comparable funds. The board
recognized that the current fee arrangements would not change as a result of the
transfer. It also was noted that UBS Global Americas would continue the current
fee waiver arrangements.
Taking all of the above into consideration, the board determined that the
proposed contractual management fee was reasonable in light of the nature,
extent and quality of the services proposed to be provided to the Fund under the
New Investment Advisory and Administration Agreement.
FUND PERFORMANCE--The board took into consideration the reports on Fund
performance received by the board at each meeting and the more extensive review
and discussion of Fund performance at its most recent annual contract renewal
meeting. The board also noted that the transfer would not result in any change
in the fundamental investment processes, investment strategies or investment
techniques of the Fund and that no changes in the current Fund personnel
overseeing Fund management were proposed or anticipated as a result of the
transfer.
Based on its prior review and the more updated performance information provided,
the board concluded that the Fund's investment performance was satisfactory.
ADVISOR PROFITABILITY--As UBS Global Americas would be a new advisor to the
Fund, profitability of UBS Global Americas in providing services to the Fund was
not a primary factor considered by the board. The board did note that at its
most recent annual contract renewal meeting it received and considered a
profitability analysis of UBS Global AM and its affiliates in providing services
to the Fund and had determined at that time that UBS Global AM's profitability
was considered not excessive in light of the nature, extent and quality of the
services provided to the Fund. The board also recognized that the management fee
would not change as a result of the transfer and the services provided to the
Fund by UBS Global Americas would be identical to those currently provided by
UBS Global AM, making
--------------------------------------------------------------------------------
44
INSURED MUNICIPAL INCOME FUND INC.
BOARD APPROVAL OF INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENT (UNAUDITED)
the profitability data received at its last contract renewal meeting still of
some relevance. UBS Global AM also noted that a significant benefit of the
transfer of the Investment Advisory and Administration Agreement to UBS Global
Americas was to reduce a regulatory capital requirement imposed on UBS Global
AM, which was expected to permit the eventual transfer of certain financial
assets owned by UBS Global AM to satisfy regulatory requirements to other parts
of UBS AG for other corporate purposes.
ECONOMIES OF SCALE--The board noted that it had previously considered whether
economies of scale in the provision of services to the Fund would be passed
along to the shareholders during its most recent consideration of the annual
renewal of the Investment Advisory and Administration Agreement and did not see
the need to reconsider this factor again in the context of the transfer of the
agreement to a sister investment advisor.
OTHER BENEFITS TO UBS GLOBAL AMERICAS--The board considered other benefits
received by UBS Global Americas and its affiliates as a result of its proposed
relationship with the Fund, including the potential opportunity to offer
additional products and services to Fund shareholders. The board also considered
the benefits to be realized when certain assets of UBS Global AM were freed from
certain regulatory requirements and were available to be paid as a dividend from
one part of UBS AG to another part of UBS AG for such purposes as UBS AG deemed
appropriate.
In light of the costs of providing investment management, administrative and
other services to the Fund and UBS Global America's expected ongoing commitment
to the Fund, the profits and other ancillary benefits that UBS Global Americas
and its affiliates received or would receive were considered reasonable.
In light of all of the foregoing, the board approved the New Investment Advisory
and Administration Agreement for the Fund.
No single factor reviewed by the board was identified by the board as the
principal factor in determining whether to approve the New Investment Advisory
and Administration Agreement. The Independent Directors were advised by separate
independent legal counsel throughout the process. The board discussed the
proposed approval of the New Investment Advisory and Administration Agreement in
a private session with their independent legal counsel at which no
representatives of UBS Global AM or UBS Global Americas were present.
--------------------------------------------------------------------------------
45
INSURED MUNICIPAL INCOME FUND INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
BOARD OF DIRECTORS & OFFICERS
The Fund is governed by a Board of Directors which oversees the Fund's
operations. Each director serves until the next annual meeting of shareholders
or until his or her 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 DIRECTOR
Term of
Position(s) Office+ and
Name, Address, Held with Length of Principal Occupation(s)
and Age Fund Time Served During Past 5 Years
----------------------------------------------------------------------------------------------------------
Meyer Feldberg#; 64 Director Since 1993 Professor Feldberg is Dean Emeritus
Morgan Stanley and Sanford Bernstein Professor of
1585 Broadway Leadership and Ethics at Columbia
33rd Floor Business School, although on a two
New York, NY 10036 year leave of absence. He is also a
senior advisor to Morgan Stanley
(financial services) (since March 2005).
Prior to July 2004, he was Dean and
Professor of Management of the
Graduate School of Business at
Columbia University (since 1989).
--------------------------------------------------------------------------------
46
INSURED MUNICIPAL INCOME FUND INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
Number of
Portfolios in Fund Complex Other Directorships
Overseen by Director Held by Director
----------------------------------------------------------------------------------------------------------
Professor Feldberg is a director or trustee of Professor Feldberg is also a director of
29 investment companies (consisting of Primedia Inc. (publishing), Federated Department
48 portfolios) for which UBS Global AM or one Stores, Inc. (operator of department stores),
of its affiliates serves as investment advisor, Revlon, Inc. (cosmetics), and SAPPI, Ltd.
sub-advisor or manager. (producer of paper).
--------------------------------------------------------------------------------
47
INSURED MUNICIPAL INCOME FUND INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
INDEPENDENT DIRECTORS
Term of
Position(s) Office+ and
Name, Address, Held with Length of Principal Occupation(s)
and Age Fund Time Served During Past 5 Years
----------------------------------------------------------------------------------------------------------
Richard Q. Armstrong; 70 Director and Since 1995 Mr. Armstrong is chairman and
c/o Willkie Farr & Chairman of (Director) principal of R.Q.A. Enterprises
Gallagher LLP the Board of Since 2004 (management consulting firm)
787 Seventh Avenue Directors (Chairman of (since April 1991 and principal
New York, NY 10019-6099 the Board occupation since March 1995).
of Directors)
David J. Beaubien; 71 Director Since 2001 Mr. Beaubien is retired (since
84 Doane Road 2003). He was chairman of Yankee
Ware, MA 01082 Environmental Systems, Inc., a
manufacturer of meteorological
measuring systems (since 1991).
Alan S. Bernikow; 65 Director Since 2005 Mr. Bernikow is a consultant on
c/o Deloitte & Touche non-management matters for the
1633 Broadway firm of Deloitte & Touche
New York, NY 10019 (international accounting and
consulting firm) (since June 2003).
Previously, he was Deputy Chief
Executive Officer at Deloitte &
Touche.
Richard R. Burt; 59 Director Since 1995 Mr. Burt is chairman of Diligence Inc.
1275 Pennsylvania Ave., N.W. (information and risk management
Washington, D.C. 20004 firm) and IEP Advisors (international
investments and consulting firm).
Bernard B. Garil; 65 Director Since 2005 Mr. Garil is retired (since 2001). He
6754 Casa Grande Way was a Managing Director at PIMCO
Delray Beach, FL 33446 Advisory Services (from 1999 to
2001) where he served as President
of closed-end funds and
Vice-President of the variable
insurance product funds advised by
OpCap Advisors (until 2001).
--------------------------------------------------------------------------------
48
INSURED MUNICIPAL INCOME FUND INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
Number of
Portfolios in Fund Complex Other Directorships
Overseen by Director Held by Director
----------------------------------------------------------------------------------------------------------
Mr. Armstrong is a director or trustee of 16 None
investment companies (consisting of 35 portfolios)
for which UBS Global AM or one of its affiliates
serves as investment advisor, sub-advisor or
manager.
Mr. Beaubien is a director or trustee of 16 Mr. Beaubien is also a director of IEC
investment companies (consisting of 35 portfolios) Electronics, Inc., a manufacturer of electronic
for which UBS Global AM or one of its affiliates assemblies.
serves as investment advisor, sub-advisor or
manager.
Mr. Bernikow is a director or trustee of 16 Mr. Bernikow is also a director of Revlon, Inc.
investment companies (consisting of 35 portfolios) (cosmetics) (and serves as the chair of its
for which UBS Global AM or one of its affiliates audit committee), a director of Mack-Cali
serves as investment advisor, sub-advisor or Realty Corporation (real estate investment
manager. trust) (and serves as the chair of its audit
committee) and a director of the Casual
Male Retail Group, Inc. (menswear).
Mr. Burt is a director or trustee of 16 investment Mr. Burt is also a director of The Central
companies (consisting of 35 portfolios) for which European Fund, Inc., The Germany Fund, Inc.,
UBS Global AM or one of its affiliates serves as The New Germany Fund, Inc., IGT, Inc.
investment advisor, sub-advisor or manager. (provides technology to gaming and wagering
industry) and The Protective Group, Inc. (produces
armor products).
Mr. Garil is a director or trustee of 16 investment Mr. Garil is also a director of OFI Trust
companies (consisting of 35 portfolios) for which Company (commercial trust company) and
UBS Global AM or one of its affiliates serves as a trustee for the Brooklyn College
investment advisor, sub-advisor or manager. Foundation, Inc. (charitable foundation).
--------------------------------------------------------------------------------
49
INSURED MUNICIPAL INCOME FUND INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
INDEPENDENT DIRECTORS (CONCLUDED)
Term of
Position(s) Office+ and
Name, Address, Held wit Length of Principal Occupation(s)
and Age Fund Time Served During Past 5 Years
-------------------------------------------------------------------------------------------------------------
Heather R. Higgins; 46 Director Since 2005 Ms. Higgins is the President and
255 E. 49th St., Suite 23D Director of The Randolph Foundation
New York, NY 10017 (charitable foundation) (since 1991).
Ms. Higgins also serves on the
boards of several non-profit
charitable groups, including the
Independent Women's Forum
(chairman), the Philanthropy
Roundtable (vice chairman) and the
Hoover Institution (executive
committee).
--------------------------------------------------------------------------------
50
INSURED MUNICIPAL INCOME FUND INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
Number of
Portfolios in Fund Complex Other Directorships
Overseen by Director Held by Director
--------------------------------------------------------------------------------------
Ms. Higgins is a director or trustee of 16 None
investment companies (consisting of 35 portfolios)
for which UBS Global AM or one of its
affiliates serves as investment advisor,
sub-advisor or manager.
--------------------------------------------------------------------------------
51
INSURED MUNICIPAL INCOME FUND INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
OFFICERS
Term of Principal Occupation(s)
Position(s) Office+ and During Past 5 Years;
Name, Address, Held with Length of Number of Portfolios in Fund Complex
and Age Fund Time Served for which Person Serves as Officer
-------------------------------------------------------------------------------------------------------------
Joseph Allessie*; 40 Vice President Since 2005 Mr. Allessie is a director and deputy
and Assistant general counsel at UBS Global Asset
Secretary Management (US) Inc. and UBS Global
Asset Management (Americas) Inc.
(collectively, "UBS Global AM--Americas
region") (since 2005). Prior to joining
UBS Global AM--Americas region, he
was senior vice president and general
counsel of Kenmar Advisory Corp. (from
2004 to 2005). Prior to that Mr. Allessie
was general counsel and secretary of GAM
USA Inc., GAM Investments, GAM
Services, GAM Funds, Inc. and the GAM
Avalon Funds (from 1999 to 2004). Mr.
Allessie is a vice president and assistant
secretary of 20 investment companies
(consisting of 90 portfolios) for which
UBS Global AM--Americas region or one
of its affiliates serves as investment
advisor, sub-advisor or manager.
W. Douglas Beck*; 39 President Since 2005 Mr. Beck is an executive director and
head of product development and
management for UBS Global AM--
Americas region (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 90 portfolios) for which UBS Global
AM--Americas region 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.
--------------------------------------------------------------------------------
52
INSURED MUNICIPAL INCOME FUND INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
OFFICERS (CONTINUED)
Term of Principal Occupation(s)
Position(s) Office+ and During Past 5 Years;
Name, Address, Held with Length of Number of Portfolios in Fund Complex
and Age Fund Time Served for which Person Serves as Officer
-------------------------------------------------------------------------------------------------------------
Thomas Disbrow*; 40 Vice President Since 2000 Mr. Disbrow is a director, head of retail
and Treasurer (Vice President) mutual fund operations and co-head of
Since 2004 the mutual fund finance department of
(Treasurer) UBS Global AM--Americas region.
Mr. Disbrow is a vice president and
treasurer of 16 investment companies
(consisting of 35 portfolios) and vice
president and assistant treasurer of four
investment companies (consisting of 55
portfolios) for which UBS Global AM--
Americas region or one of its affiliates
serves as investment advisor, sub-advisor
or manager.
Elbridge T. Gerry III*; 49 Vice President Since 1996 Mr. Gerry is a managing director -
municipal fixed income of UBS Global
AM--Americas region. Mr. Gerry is a vice
president of six investment companies
(consisting of 10 portfolios) for which
UBS Global AM--Americas region or one
of its affiliates serves as investment
advisor, sub-advisor or manager.
--------------------------------------------------------------------------------
53
INSURED MUNICIPAL INCOME FUND INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
OFFICERS (CONTINUED)
Term of Principal Occupation(s)
Position(s) Office+ and During Past 5 Years;
Name, Address, Held with Length of Number of Portfolios in Fund Complex
and Age Fund Time Served for which Person Serves as Officer
-------------------------------------------------------------------------------------------------------------
Mark F. Kemper**; 48 Vice President Since 2004 Mr. Kemper is general counsel of UBS
and Secretary Global AM--Americas region (since
July 2004). Mr. Kemper also is a
managing director of UBS Global AM--
Americas region (since 2006). He was deputy
general counsel of UBS Global Asset
Management (Americas) Inc. ("UBS
Global AM (Americas)") 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--Americas region (since
2004). Mr. Kemper is vice president and
secretary of 20 investment companies
(consisting of 90 portfolios) for which
UBS Global AM--Americas region or
one of its affiliates serves as investment
advisor, sub-advisor or manager.
Joanne M. Kilkeary*; 38 Vice President Since 2004 Ms. Kilkeary is an associate director
and Assistant (since 2000) and a senior manager
Treasurer (since 2004) of the mutual fund finance
department of UBS Global AM--Americas
region. Ms. Kilkeary is a vice president
and assistant treasurer of 16 investment
companies (consisting of 35 portfolios)
for which UBS Global AM--Americas region
or one of its affiliates serves as
investment advisor, sub-advisor or manager.
--------------------------------------------------------------------------------
54
INSURED MUNICIPAL INCOME FUND INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
OFFICERS (CONTINUED)
Term of Principal Occupation(s)
Position(s) Office+ and During Past 5 Years;
Name, Address, Held with Length of Number of Portfolios in Fund Complex
and Age Fund Time Served for which Person Serves as Officer
-------------------------------------------------------------------------------------------------------------
Tammie Lee*; 35 Vice President Since 2005 Ms. Lee is a director and associate
and Assistant general counsel of UBS Global AM--
Secretary Americas region (since November 2005).
Prior to joining UBS Global AM--
Americas region, she was vice president
and counsel at Deutsche Asset
Management/Scudder Investments from
April 2003 to October 2005. Prior to
that she was assistant vice president
and counsel at Deutsche Asset
Management/Scudder Investments from
July 2000 to March 2003. Prior to joining
Deutsche Asset Management/ Scudder
Investments, she was assistant counsel at
First Investors Corporation from August
1996 to June 2000. Ms. Lee is a vice
president and assistant secretary of
20 investment companies (consisting of
90 portfolios) for which UBS Global
AM--Americas region or one of its
affiliates serves as investment advisor,
sub-advisor or manager.
Joseph T. Malone*; 38 Vice President Since 2004 Mr. Malone is a director and co-head of
and Assistant (Vice President) the mutual fund finance department of
Treasurer Since 2001 UBS Global AM--Americas region. From
(Assistant August 2000 through June 2001, he
Treasurer) was the controller at AEA Investors Inc.
Mr. Malone is vice president and assistant
treasurer of 16 investment companies
(consisting of 35 portfolios) and
vice president, treasurer and principal
accounting officer of four investment
companies (consisting of 55 portfolios)
for which UBS Global AM--Americas
region or one of its affiliates serves as
investment advisor, sub-advisor or
manager.
--------------------------------------------------------------------------------
55
INSURED MUNICIPAL INCOME FUND INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
OFFICERS (CONTINUED)
Term of Principal Occupation(s)
Position(s) Office+ and During Past 5 Years;
Name, Address, Held with Length of Number of Portfolios in Fund Complex
and Age Fund Time Served for which Person Serves as Officer
-------------------------------------------------------------------------------------------------------------
Joseph McGill*; 44 Vice President Since 2004 Mr. McGill is a managing director (since
and Chief March 2006) and chief compliance officer
Compliance (since 2003) at UBS Global AM--Americas
Officer region. Prior to joining UBS Global
AM--Americas region, he was assistant
general counsel at J.P. Morgan Investment
Management (from 1999 to 2003). Mr. McGill
is a vice president and chief compliance
officer of 20 investment companies
(consisting of 90 portfolios) for which UBS
Global AM--Americas region or one of its
affiliates serves as investment advisor,
sub-advisor or manager.
Kevin McIntyre*; 39 Vice President Since 2005 Mr. McIntyre is a director (since March
2003) and portfolio manager (since
October 2005) of UBS Global AM--
Americas region. He is also Head of
Municipal Trading since 2002. Prior to that
he was a trader and assistant portfolio
manager with UBS Global AM--Americas
region. Mr. McIntyre is a vice president of
two investment companies (consisting of
two portfolios) for which UBS Global
AM--Americas region or one of its
affiliates serves as investment advisor,
sub-advisor or manager.
--------------------------------------------------------------------------------
56
INSURED MUNICIPAL INCOME FUND INC.
SUPPLEMENTAL INFORMATION (UNAUDITED)
OFFICERS (CONTINUED)
Term of Principal Occupation(s)
Position(s) Office+ and During Past 5 Years;
Name, Address, Held with Length of Number of Portfolios in Fund Complex
and Age Fund Time Served for which Person Serves as Officer
-------------------------------------------------------------------------------------------------------------
Eric Sanders*; 40 Vice President Since 2005 Mr. Sanders is a director and associate
and Assistant general counsel of UBS Global AM--
Secretary Americas region (since July 2005). From
1996 until June 2005, he held various
positions at Fred Alger & Company,
Incorporated, the most recent being
assistant vice president and associate
general counsel. Mr. Sanders is a vice
president and assistant secretary of
20 investment companies (consisting
of 90 portfolios) for which UBS Global
AM--Americas region or one of its
affiliates serves as investment advisor,
sub-advisor or manager.
Keith A. Weller*; 44 Vice President Since 1995 Mr. Weller is an executive director and
and Assistant senior associate general counsel of UBS
Secretary Global AM--Americas region (since 2005).
Mr. Weller is a vice president and
assistant secretary of 20 investment
companies (consisting of 90 portfolios)
for which UBS Global AM--Americas region
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 holds office 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 are appointed by the
directors and serve at the pleasure of the board.
# 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.
--------------------------------------------------------------------------------
57
INSURED MUNICIPAL INCOME FUND INC.
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
2005 annual meeting of shareholders, it filed a certification with the NYSE on
August 16, 2005 stating that its president was unaware of any violation of the
NYSE's Corporate Governance listing standards.
--------------------------------------------------------------------------------
58
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--------------------------------------------------------------------------------
59
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--------------------------------------------------------------------------------
60
DIRECTORS
Richard Q. Armstrong Meyer Feldberg
Chairman
Bernard B. Garil
David J. Beaubien Heather R. Higgins
Alan S. Bernikow
Richard R. Burt
PRINCIPAL OFFICERS
W. Douglas Beck EIbridge T. Gerry III
President Vice President
Mark F. Kemper Kevin McIntyre
Vice President and Secretary Vice President
Thomas Disbrow
Vice President and Treasurer
INVESTMENT ADVISOR AND ADMINISTRATOR
UBS Global Asset Management (Americas) 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) 2006 UBS Global Asset Management (Americas) Inc. All rights reserved.
[LOGO OF UBS] UBS
-------------
UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC. PRESORTED
51 West 52nd Street STANDARD
New York, New York 10019-6114 U.S. POSTAGE
PAID
COMPUTERSHARE
-------------
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: Alan S. Bernikow. Mr. Bernikow 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, 2006 and March 31, 2005, the
aggregate Ernst & Young LLP (E&Y) audit fees for professional
services rendered to the registrant were approximately $38,500 and
$37,300, 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, 2006 and March 31, 2005,
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 $8,712 and $12,500, respectively.
Fees included in the audit-related category are those associated with
(1) the reading and providing of comments on the 2005 and 2004
semiannual financial statements, (2) review of the consolidated 2004
and 2003 report on the profitability of the UBS Funds to UBS Global
Asset Management (US) Inc. ("UBS Global AM") and its affiliates 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 2006 and 2005.
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, 2006 and March 31, 2005,
the aggregate tax fees billed by E&Y for professional services
rendered to the registrant were approximately $12,075 and $8,600,
respectively.
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, 2006 and March 31, 2005,
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, 2006 and March 31, 2005 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, 2006 and March 31, 2005 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, 2006 and March 31, 2005 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, 2006 and March 31, 2005 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, 2006 and March 31, 2005 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, 2006 and March 31, 2005 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, 2006, 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, 2006 and March 31, 2005, the
aggregate fees billed by E&Y of $82,287 and $96,100, 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:
2006 2005
---- ----
Covered Services $20,787 $21,100
Non-Covered Services 61,500 75,000
(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. Bernikow, Mr. Burt,
Mr. Garil and Ms. Higgins.
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
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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.
-------------------------------------------------------------------------
(a) (1) Name - Kevin McIntyre
Title - Vice President
Length of Service - Since 2005
Business Experience Last 5 Years - Mr. McIntyre is a director
(since March 2003) and portfolio manager (since October 2005) of UBS
Global Asset Management (Americas) Inc. and UBS Global Asset
Management (US) Inc. (collectively, the "UBS Global AM - Americas
Region" or "Advisor"). He is also Head of Municipal Trading since
2002. Prior to that he was a trader and assistant portfolio manager
with the UBS Global AM - Americas Region. Mr. McIntyre is a vice
president of two investment companies (consisting of two portfolios)
for which UBS Global AM - Americas Region or one of its affiliates
serves as investment advisor, sub-advisor or manager.
Information is as of - March 31, 2006
(a) (2) (i) Portfolio Manager
Kevin McIntyre
(a) (2) (ii) (A) Registered Management Investment Companies
The portfolio manager is responsible for 1 additional
Registered Management Investment Company and manages $782,554,774 in
total assets.
(a) (2) (ii) (B) Other Pooled Investment Vehicles
None
(a) (2) (ii) (C) Other Accounts
None
(a) (2) (iii) Accounts with respect to which an advisory fee is based on
the performance of the account.
None
(a) (2) (iv) Conflicts.
The management of the registrant and other accounts by a
portfolio manager could result in potential conflicts of interest if
the registrant and other accounts have different objectives,
benchmarks and fees because the portfolio manager and his team must
allocate time and investment expertise across multiple accounts,
including the registrant. The portfolio manager and his team manage
the registrant and other accounts utilizing an approach that groups
similar accounts characteristics and objectives. The Advisor manages
accounts according to their respective objectives, including where
possible, those accounts that have specific investment restrictions.
Accordingly, portfolio holdings, position sizes, and industry and
sector exposures tend to be similar across accounts, which may
minimize the potential for conflicts of interest.
If a portfolio manager identifies a limited investment opportunity
that may be suitable for more than one account, the registrant may not
be able to take full advantage of that opportunity due to an allocation
of filled purchase or sale orders across all eligible model portfolios
and accounts. To deal with these situations, the Advisor has adopted
procedures for allocating portfolio trades across multiple accounts to
provide fair treatment to all accounts.
The management of personal accounts by a portfolio manager may
also give rise to potential conflicts of interest. The Advisor and
the registrant have adopted Codes of Ethics that govern such personal
trading but there is no assurance that the Codes will adequately
address all such conflicts.
(a) (3) Compensation.
The compensation received by portfolio managers at UBS Global
AM - Americas Region, including Mr. McIntyre, includes a base salary
and incentive compensation as detailed below. Overall compensation
can be grouped into three categories: Base Salary, Annual bonuses and
UBS AG Equity. Base salary is fixed compensation used to recognize
the experience, skills and knowledge that the investment
professionals bring to their roles. Annual bonuses are correlated
with performance and are based on three components: 1) the firm's
overall business success; 2) the performance of the respective asset
class and/or investment mandate; and 3) an individual's specific
contribution to the firm's results. Senior investment professionals
may receive a portion of their annual performance-based incentive in
the form of deferred or restricted UBS AG shares or employee stock
options. Broader equity share ownership is encouraged for all
employees through "Equity Plus." This long-term incentive program
gives employees the opportunity to purchase UBS stock with after-tax
funds from their bonus or salary. Two UBS stock options are given for
each share acquired and held for two years.
(a) (4) Dollar Range of Securities of Registrant Beneficially Owned.
None
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, 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 (as defined in Rule 30a-3(d) under the
Investment Company Act of 1940, as amended) that occurred during the
registrant's last fiscal quarter 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 26, 2006
------------
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 26, 2006
------------
By: /s/ Thomas Disbrow
------------------
Thomas Disbrow
Vice President and Treasurer
Date: May 26, 2006
------------