UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.)
Check the appropriate box:
[X] Preliminary
Proxy Statement
[ ] Confidential, for Use of
the Commission Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive
Additional Materials
[ ] Soliciting Material Under
Rule 14a-12
Payment of Filing Fee (Check the appropriate box):
| [X] | No fee required. | |
| [ ] | Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. | |
| 1) | Title of each class of securities to which transaction applies: | |
| 2) | Aggregate number of securities to which transaction applies: | |
| 3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): | |
| 4) | Proposed maximum aggregate value of transaction: | |
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| [ ] | Fee paid previously with preliminary materials: | |
| [ ] | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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| 4) | Date Filed: | ||
(New York Stock Exchange Trading Symbol: PIF)
Notice of annual meeting of shareholders
August 12, 2009
To the shareholders:
The annual meeting of stockholders (herein
referred to as “shareholders”) of Insured Municipal Income Fund Inc.,
a Maryland corporation (the “Fund”), will be held on August 12, 2009 at
10:00 a.m., Eastern time, on the 16th Floor of the CBS Building located at 51 West
52nd Street, New York, New York 10019-6114 for the following purposes:
| Matters to be voted upon only by holders of auction preferred shares: | ||
| (1) | To elect two directors to serve until the annual meeting of shareholders in 2010 and until their successors are elected and qualify or until they resign or are otherwise removed. | |
| Matters to be voted upon by all shareholders: | ||
| (2) | To elect four directors to serve until the annual meeting of shareholders in 2010 and until their successors are elected and qualify or until they resign or are otherwise removed; | |
| (3) | To approve a new investment advisory and administration contract with lower contractual fees between the Fund and UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s current investment advisor; | |
| (4) | To approve a change in the Fund’s investment policies to address recent market developments and make the Fund more competitive; | |
| (5) | To consider, if properly presented, a shareholder proposal recommending that the board of directors (“Board”) take action, subject to market conditions, to afford common and preferred shareholders an opportunity to realize the net asset value of their shares; | |
| (6) | To consider, if properly presented, a shareholder proposal that the investment advisory agreement between the Fund and UBS Global AM be terminated; and | |
| (7) | To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. | |
You are entitled to vote at the meeting
and any adjournment or postponement thereof if you owned Fund shares at the close
of business on May 15, 2009. If you attend the meeting, you may vote your shares
in person.If you do not expect to attend the meeting, please complete, date,
sign and return the enclosed WHITE proxy card in the enclosed postage paid envelope.
Your vote at this year’s meeting is particularly important because a dissident
shareholder has indicated its intention to solicit proxies to elect its own nominees
to the Board at the meeting and has requested the Fund to include a proposal in
this proxy statement (i.e., Proposal 5), and
another dissident shareholder has requested the Fund to include its proposal to
terminate the investment advisory agreement between the Fund and UBS Global AM in
this proxy statement (i.e., Proposal 6). The Board supports Proposal 5 and has been
working with UBS Global AM to take actions to further this goal. However, the Board
unanimously opposes the dissident
nominees and the shareholder proposal
to terminate the investment advisory agreement between the Fund and UBS Global AM (i.e., Proposal 6).
The Board believes that its own nominees will best serve the interests of the Fund,
and that Proposal 6 is not in the best interests of the Fund.
Please remember: whether or not you plan to attend the meeting, and regardless of
the number of shares you own, we urge you to vote FOR Proposals 1, 2, 3, 4 and 5
and AGAINST Proposal 6 by promptly completing, signing, dating and returning the
enclosed WHITE proxy card. Your prompt return of the enclosed WHITE proxy card will
save the Fund the necessity and expense of further solicitations to ensure a quorum
at the Annual Meeting. Please do not sign any other color proxy card that may be
provided by a dissident shareholder.
By order of the Board,
Mark F. Kemper
Vice President and Secretary
May [29,] 2009
51 West 52nd Street
New York, New York 10019-6114
| Your vote
is important no matter how many shares you own Please indicate your voting instructions on the enclosed WHITE proxy card, date and sign it, and return it in the postage paid envelope provided. If you sign, date and return the proxy card but give no voting instructions, your shares will be voted “FOR” the nominees for director for which you are entitled to cast a vote named in the attached proxy statement (i.e., Proposals 1 and 2), “FOR” the proposed new advisory and administration contract (i.e., Proposal 3), “FOR” the proposed change to the Fund’s investment policies (i.e., Proposal 4), “FOR” the shareholder proposal recommending the Board take action to afford shareholders an opportunity to realize the net asset value of their shares (i.e., Proposal 5), “AGAINST” the shareholder proposal to terminate the current investment advisory agreement (i.e., Proposal 6), and, in the proxies’ discretion, either “FOR” or “AGAINST” any other business that may properly arise at the annual meeting. In order to avoid the additional expense to the Fund of further solicitation, we ask your cooperation in mailing in your WHITE proxy card promptly. |
||
Instructions for signing proxy cards
The following general guidelines for signing proxy cards may be of assistance to you and avoid the time and expense to the Fund in validating your vote if you fail to sign your proxy card properly.
1. Individual accounts: Sign your name exactly as it appears in the registration on the proxy card.
2. Joint accounts: Either party
may sign, but the name of the party signing should conform exactly to the name shown
in the registration on the proxy card.
3. All other accounts: The capacity
of the individual signing the proxy card should be indicated unless it is reflected
in the form of registration. For example:
| Registration | Valid signature | |
| Corporate accounts | ||
| (1) ABC Corp. | ABC Corp. | |
| John Doe, treasurer | ||
| (2) ABC Corp. | John Doe, treasurer | |
| (3) ABC Corp. c/o John Doe, treasurer | John Doe | |
| (4) ABC Corp. profit sharing plan | John Doe, trustee | |
| Partnership accounts | ||
| (1) The XYZ partnership | Jane B. Smith, partner | |
| (2) Smith and Jones, limited partnership | Jane B. Smith, general partner | |
| Trust accounts | ||
| (1) ABC trust account | Jane B. Doe, trustee | |
| (2) Jane B. Doe, trustee u/t/d 12/18/78 | Jane B. Doe | |
| Custodial or estate accounts | ||
| (1) John B. Smith, Cust. f/b/o | ||
| John B. Smith, Jr. UGMA/UTMA | John B. Smith | |
| (2) Estate of John B. Smith | John B. Smith, Jr., executor | |
| Table of Contents | ||
| Introduction | 1 | |
| Proposals 1. and 2. Election of directors | 2 | |
| Proposal 3. New investment advisory and administration contract | 8 | |
Overview and related information |
8 | |
Proposed changes in fee structure |
8 | |
Other proposed modernizing changes |
9 | |
Terms common to the Current and Proposed Contracts |
9 | |
Comparison of Current and Proposed Contracts |
10 | |
Investment management services provided by UBS Global AM would remain the same |
13 | |
Information regarding UBS Global AM and UBS AG |
13 | |
Basis for the Board’s approval of the Proposed Contract |
13 | |
| Proposal 4. Change in investment policy | 15 | |
Proposed changes to investment policy |
15 | |
Reasons for these changes |
16 | |
| Proposal 5. Shareholder proposal recommending that the Board take action, subject to market conditions, to afford common and preferred shareholders an opportunity to realize the net asset value of their shares | 17 | |
Supporting statement of the shareholder |
18 | |
Supporting statement of the Board |
18 | |
| Proposal 6. Shareholder proposal to terminate the investment advisory agreement between the Fund and UBS Global AM | 20 | |
Supporting statement of the shareholder |
20 | |
Opposing statement of the Board |
21 | |
| Additional information about the Board | 27 | |
| Information concerning independent registered public accounting firm | 31 | |
| Executive officers | 34 | |
| Other information | 39 | |
Beneficial ownership of shares |
39 | |
Section 16(a) beneficial ownership reporting compliance |
39 | |
Shareholder proposals |
39 | |
Currency of information |
40 | |
Solicitation of proxies |
40 | |
Important notice regarding the availability of proxy materials for the annual meeting of shareholders to be held on August 12, 2009 |
40 | |
Other business |
40 | |
| Exhibits | ||
| Exhibit A | A-1 | |
| Exhibit B | B-1 | |
| Exhibit C | C-1 | |
| Exhibit D | D-1 | |
| Exhibit E | E-1 | |
| Exhibit F | F-1 |
New York, New York 10019-6114
Annual meeting
of shareholders to be held on August 12, 2009
This proxy statement is furnished
to the stockholders (herein referred to as “shareholders”) of Insured
Municipal Income Fund Inc. (the “Fund”) in connection with the solicitation
by the board of directors (“Board”) of proxies to be used at the annual
meeting of the shareholders of the Fund to be held on August 12, 2009, at 10:00
a.m., Eastern time, on the 16th Floor of the CBS Building located at 51 West 52nd
Street, New York, New York 10019-6114, or any adjournment or postponement thereof.
This proxy statement and the related proxy card will first be mailed to shareholders
on or about May 29, 2009.
Quorum. The presence, in person or by proxy,
of shareholders entitled to cast a majority of the votes entitled to be cast at
the meeting (i.e., the presence of a majority of the shares outstanding on May 15,
2009) is necessary to constitute a quorum for the transaction of business. In the
event that a quorum is not present at the annual meeting (including a quorum of
the Fund’s auction preferred shares (“APS”) with respect to the election
of the two directors to be elected solely by the APS), or if a quorum is present
at the annual meeting but sufficient votes to approve any of the proposals are not
received, the chairman of the meeting may adjourn the meeting, or the persons named
as proxies may propose one or more adjournments of the annual meeting to permit
further solicitation of proxies. If submitted to shareholders, any such adjournment
will require the affirmative vote of holders of a majority of those shares represented
at the annual meeting in person or by proxy (or a majority of votes cast if a quorum
is present). A shareholder vote may be taken on one or more of the proposals in
this proxy statement prior to any such adjournment if sufficient votes have been
received and it is otherwise appropriate.
Required vote for adoption of proposals.
Proposal 1 (to elect two directors) and Proposal 2 (to elect four directors)
each require the affirmative vote of a plurality of the votes cast at the meeting,
provided a quorum is present. The holders of the outstanding APS voting as a separate
class are entitled to vote on Proposal 1. The holders of both the outstanding common
stock and APS voting together as a single class are entitled to vote on Proposal
2.
Proposal 3 (to approve a new investment advisory and administration contract),
Proposal 4 (to approve a change in the Fund’s investment policies) and Proposal
6 (to consider, if properly presented, a shareholder proposal that the investment
advisory agreement be terminated) each require the affirmative vote of a “majority
of the outstanding voting securities” of the Fund. Under the Investment Company
Act of 1940, as amended (“1940 Act”), the vote of a “majority of
the outstanding voting securities” means the affirmative vote of the lesser
of (a) 67% or more of the shares present at the meeting or represented by proxy
if the holders of 50% of the outstanding shares are present or represented by proxy
or (b) more than 50% of the outstanding voting shares.
Proposal 5 (to consider,
if properly presented, a shareholder proposal recommending the Board take action
to afford shareholders an opportunity to realize the net asset value of their shares)
requires the affirmative vote of a majority of the votes cast at the meeting on
the proposal, provided a quorum is present.
Except as otherwise indicated herein,
all of the outstanding shares of the Fund’s common stock and APS will vote
together as a single class. Each full share of the Fund’s common stock or APS
is entitled to one vote, and each fractional share of the Fund’s common stock
or APS is entitled to a proportionate share of one vote. However, as discussed in
connection with Proposals 1 and 2, the holders of the APS, voting as a separate
class, are entitled to elect two of the Fund’s directors.
A broker non-vote occurs when the broker
returns a properly executed proxy for shares held by the broker for a customer but
does not vote on a matter because the broker does not have discretionary voting
authority and has not received instructions from the beneficial owner. Abstentions
and broker non-votes, if any, will be counted as shares present for purposes of
determining whether a quorum is present but will not be voted for or against any
proposal. Abstentions and broker non-votes will have no effect on Proposals 1, 2
and 5; however, they will have the effect of a vote against Proposals 3, 4 and 6.
The individuals named as proxies on the enclosed WHITE proxy card will vote in
accordance with your direction as indicated thereon if your proxy card is received
properly executed by you or by your duly appointed agent or attorney-in-fact. With
respect to the holders of the APS, if you give no voting instructions, your shares
will be voted FOR Proposals 1, 2, 3, 4 and 5 and AGAINST Proposal 6, and, in the
proxies’ discretion, either FOR or AGAINST any other business that may properly
be presented at the annual meeting (e.g., adjourning the meeting if a shareholder
vote is called). With respect to the holders of the Fund’s common stock, if
you give no voting instructions, your shares will be voted FOR Proposals 2, 3, 4
and 5 and AGAINST Proposal 6, and, in the proxies’ discretion, either FOR or
AGAINST any other business that may properly be presented at the annual meeting
(e.g., adjourning the meeting if a shareholder vote is called).
You may revoke
any proxy card by giving another proxy or by submitting a written notice of revocation
to the Fund’s Secretary, care of UBS Global Asset Management (Americas) Inc.,
at UBS Tower, One North Wacker Drive, Chicago, IL 60606. To be effective, your revocation
must be received by the Fund prior to the meeting and must indicate your name and
account number. In addition, if you attend the annual meeting in person you may,
if you wish, vote in person at the meeting, thereby cancelling any proxy previously
given.
If Proposal 1 is not approved, the two nominees named herein entitled
to be voted upon solely by the APS holders will continue to serve in their current
capacities as directors of the Fund until their successors are elected and qualify,
as provided by Maryland law. If Proposal 2 is not approved, the four nominees named
herein entitled to be voted upon by all common shareholders and APS holders will
continue to serve in their current capacities as directors of the Fund until their
successors are elected and qualify, as provided by Maryland law. If Proposal 6 is
approved but Proposal 3 is not approved, the existing investment advisory and administration
contract between the Fund and UBS Global AM (“Current Contract”) will
terminate in accordance with its terms and the Board will take such further action
regarding the management of the Fund as it deems necessary and appropriate, in accordance
with applicable law. If Proposal 3 is approved, regardless of the results of the
vote upon Proposal 6, the new investment advisory and administration contract (“Proposed Contract”) will become effective as soon as practicable. If Proposal
4 is not approved, UBS Global AM will consider the Fund’s investment program
in its entirety and determine whether other changes to the Fund’s investment
policies are appropriate. If Proposal 5 is approved, the Board will consider what
actions are appropriate to implement the recommendation, if any.
As of the record
date, May 15, 2009, the Fund had outstanding 20,628,363 shares of common stock and
3,100 shares of the APS, representing Series A, Series B, Series C, Series D,
Series E and Series F shares. The Fund has made arrangements for assistance with
the solicitation of proxies, as described in the section below entitled, “Solicitation
of Proxies.”
The Fund’s annual report containing financial statements
for the fiscal year ended March 31, 2009 is being mailed to shareholders concurrently
with this proxy statement.
Proposals 1. and 2. Election of directors
Proposals 1 and 2 relate to the election of directors of the Fund. Management proposes the election of the six nominees named in the table below. Each nominee has indicated his or her willingness to serve if elected. If elected, each nominee will hold office until the next annual meeting of shareholders and until his or her successor is elected and qualifies. Each of the nominees was last elected director at an Annual Meeting of Shareholders held on July 19, 2007.
- 2 -
Holders of the outstanding APS, voting as
a separate class, are entitled to elect two of the Fund’s directors. Meyer
Feldberg and Richard R. Burt have been nominated as the directors that are to be
elected solely by holders of the APS. The other four directors will be elected by
holders of the outstanding common stock and APS, voting together as a single class.
Richard Q. Armstrong, Alan S. Bernikow, Bernard H. Garil and Heather R. Higgins
have been nominated as the directors who are to be voted on by all holders of common
stock and APS. If you properly execute and return the enclosed proxy card, unless
you give contrary instructions on the enclosed proxy card, then if you are a holder
APS, your APS will be voted FOR the election of all six nominees; and, if you are
a holder of the common stock, your shares of common stock will be voted FOR the
four nominees who are to be voted upon by all common stock and APS holders. If any
of the nominees should withdraw or otherwise become unavailable for election, your
shares will be voted FOR such other nominee or nominees as management may recommend.
Directors, including those who are not “interested persons” of the
Fund as that term is defined by the 1940 Act (“Independent Directors”),
shall be elected by a plurality of the votes cast at the meeting, provided a quorum
is present. None of the current directors and executive officers (21 persons)
beneficially owned any shares of the Fund’s common stock or APS on April 30,
2009.
- 3 -
Listed in the table below, for each nominee, is a brief description of the nominee’s experience as a director of the Fund and as a director or trustee of other funds, as well as other recent professional experience.
| Term of | ||||||||||
| Position(s) | office* and | Number of portfolios | ||||||||
| held with | length of | Principal occupation(s) | in Fund complex | Other directorships | ||||||
| Name, address and age | Fund | time served | during past 5 years | overseen by nominee | held by nominee | |||||
| Interested director: | ||||||||||
| Meyer Feldberg†;
67 Morgan Stanley 1585 Broadway 36th Floor New York, NY 10036 |
Director | Since 1993 | Professor Feldberg is Dean Emeritus and Professor of Leadership and Ethics at Columbia Business School, although on an extended leave of absence. He is also a senior advisor to Morgan Stanley (financial services) (since March 2005). Professor Feldberg also serves as President of New York City Global Partners (an organization located in part of the Office of the Mayor of the City of New York that promotes interaction with other cities around the world) (since May 2007). Prior to July 2004, he was Dean and Professor of Leadership and Ethics of the Graduate School of Business at Columbia University (since 1989). | Professor Feldberg is a director or trustee of 29 investment companies (consisting of 61 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager. | Professor Feldberg is also a director of Primedia Inc. (publishing), Macy’s, Inc. (operator of department stores), Revlon, Inc. (cosmetics), SAPPI, Ltd. (producer of paper) and the New York City Ballet. | |||||
| Independent directors: | ||||||||||
| Richard Q.
Armstrong; 73 c/o Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, NY 10019-6099 |
Director and Chairman of the Board of Directors | Since 1995 (Director); Since 2004 (Chairman of the Board of Directors) | Mr. Armstrong is chairman and principal of R.Q.A. Enterprises (management consulting firm) (since April 1991 and principal occupation since March 1995). | Mr. Armstrong is a director or trustee of 17 investment companies (consisting of 49 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager. | None |
- 4 -
| Term of | ||||||||||
| Position(s) | office* and | Number of portfolios | ||||||||
| held with | length of | Principal occupation(s) | in Fund complex | Other directorships | ||||||
| Name, address and age | Fund | time served | during past 5 years | overseen by nominee | held by nominee | |||||
| Alan S. Bernikow;
68 207 Benedict Ave. Staten Island, NY 10314 |
Director | Since 2006 | Mr. Bernikow is retired. He was a consultant on non-management matters for the firm of Deloitte & Touche (international accounting and consulting firm) (from 2003 until 2007). Previously, he was deputy chief executive officer at Deloitte & Touche. | Mr. Bernikow is a director or trustee of 17 investment companies (consisting of 49 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager | Mr. Bernikow is also a director of Revlon, Inc. (cosmetics) (and serves as the chair of its audit committee and as a member of its nominating and corporate governance committee), a director of Mack-Cali Realty Corporation (real estate investment trust) (and serves as the chair of its audit committee) and a director of the Casual Male Retail Group, Inc. (menswear) (and serves as a member of its audit committee and nominating and corporate governance committee). | |||||
| Richard R.
Burt; 62 McLarty Associates 900 17th Street, N.W. Washington, D.C. 20006 |
Director | Since 1995 | Mr. Burt is a senior advisor to McLarty Associates (a consulting firm) (since April 2007) and chairman of IEP Advisors (international investments and consulting firm). Prior to April 2007, he was chairman of Diligence Inc. (information and risk management firm). | Mr. Burt is a director or trustee of 17 investment companies (consisting of 49 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager. | Mr. Burt is also a director of The Central European Fund, Inc., The Germany Fund, Inc., The New Germany Fund, Inc. and IGT, Inc. (provides technology to gaming and wagering industry). | |||||
| Bernard H.
Garil; 68 6754 Casa Grande Way Delray Beach, FL 33446 |
Director | Since 2006 | Mr. Garil is retired (since 2001). He was a managing director at PIMCO 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). | Mr. Garil is a director or trustee of 17 investment companies (consisting of 49 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager. | Mr. Garil is also a director of OFI Trust Company (commercial trust company) and a trustee for the Brooklyn College Foundation, Inc. (charitable foundation). |
- 5 -
| Term of | ||||||||||
| Position(s) | office* and | Number of portfolios | ||||||||
| held with | length of | Principal occupation(s) | in Fund complex | Other directorships | ||||||
| Name, address and age | Fund | time served | during past 5 years | overseen by nominee | held by nominee | |||||
| Heather R.
Higgins; 49 255 E. 49th St., Suite 23D New York, NY 10017 |
Director | Since 2006 | Ms. Higgins is the president and director of The Randolph Foundation (charitable foundation) (since 1991). Ms. Higgins also serves on the boards of several non-profit charitable groups, including the Independent Women’s Forum (chairman) and the Philanthropy Roundtable (vice chairman). She also serves on the board of the Hoover Institution (since January 2009). | Ms. Higgins is a director or trustee of 17 investment companies (consisting of 49 portfolios) for which UBS Global AM or one of its affiliates serves as investment advisor, sub-advisor or manager. | None |
| * | Each director holds office until the next annual meeting of shareholders and until his or her successor is elected and qualifies, or until he or she resigns or is otherwise removed. Each director who has attained the age of seventy-five (75) years will be subject to retirement on the last day of the month in which he or she attains such age, unless the Board, including a majority of its Independent Directors, determines to grant a waiver of the retirement policy with respect to a specified individual for a set period of time. The retirement policy has been waived with respect to Mr. Armstrong, the Chairman of the Board, until 2011. | |
| † | Professor Feldberg is deemed an “interested person” of the Fund as defined in the 1940 Act because he is a senior advisor to Morgan Stanley, a financial services firm with which the Fund may conduct transactions. | |
- 6 -
Information about nominee ownership of fund shares
| Dollar range | Aggregate dollar range of equity securities in all | ||||
| of equity | registered investment companies overseen by nominee | ||||
| securities in | for which UBS Global AM or an affiliate serves as | ||||
| Nominee | Fund† | investment advisor, sub-advisor or manager† | |||
| Interested director: | |||||
| Meyer Feldberg | None | Over $100,000 | |||
| Independent directors: | |||||
| Richard Q. Armstrong | None | Over $100,000 | |||
| Alan S. Bernikow | None | $50,001 - $100,000 | |||
| Richard R. Burt | None | $50,001 - $100,000 | |||
| Bernard H. Garil | None | Over $100,000 | |||
| Heather R. Higgins | None | $50,001 - $100,000 | |||
| † | Information regarding ownership of shares of the Fund and of shares in all registered investment companies overseen by nominee for which UBS Global AM or an affiliate serves as investment advisor, sub-advisor or manager is as of April 30, 2009. |
It is the Board’s policy that each member invest the equivalent of a minimum of one year’s Board member’s fees (consisting for this purpose of the annual retainer fee and fees for attending regularly scheduled in-person board meetings), in the aggregate, before changes in market value, in the funds in the New York fund complex. Such investments by a Board member may be dispersed across a number of funds, and may not necessarily be made in any one particular fund.
As of December 31, 2008, the Independent
Directors or their immediate family members did not own any securities issued by
UBS Global AM or any company controlling, controlled by or under common control
with UBS Global AM.
Important note:
The Fund has received notice from
a dissident shareholder, Full Value Offshore Partners, L.P., of that shareholder’s intent to nominate its own slate
of individuals for election to the Board at the meeting. On April 29, 2009, an affiliate of the
dissident shareholder, Bulldog Investors General Partnership (“BIGP”), filed a preliminary proxy statement
with the Securities and Exchange Commission (the “SEC”) with respect to
the meeting. Shareholders are urged not to respond to BIGP’s proxy solicitation efforts.
The Nominating and Corporate Governance Committee
of the Board is empowered by its charter to consider nominees recommended by fund
shareholders if a vacancy occurs among those Board members who are Independent Directors.
Currently, no vacancy exists. The Nominating and Corporate Governance Committee
recommended to the full Board the nomination of the current Board members because
of their experience and familiarity with the funds in the New York fund complex,
including the Fund, and because having the same Board members serve in such capacity
with respect to all of the funds in the New York fund complex assists in the work
of the Board, as well as promoting efficiency with respect to Board meetings and
minimizing director fees on a per fund basis.
If the dissident’s nominees
are elected, the Fund’s current Board believes that (i) the Fund’s investment
advisory and administration contract with UBS Global AM could be terminated arbitrarily,
stripping the Fund of the resources and expertise of UBS Global AM and potentially
leaving the Fund without the ability to adequately manage its portfolio, conduct
research, or pursue trades, or (ii) the Fund could be liquidated
- 7 -
or restructured, which the Board believes
would not be in the best interests of the Fund and could result in adverse consequences
to the Fund and its shareholders, especially in the current market environment.
As a result, the Board intends to vigorously contest the election of the dissident
nominees. We urge you to vote FOR the election of the Board’s nominees by promptly
completing, signing, dating and returning the enclosed WHITE proxy card. The directors
believe that the Board’s nominees will best serve the interests of the Fund.
Please do not return any other proxy card that you may receive from persons other
than the Fund and its agents.
Proposal 3. New investment advisory and administration contract
Proposal 3 relates to a new investment advisory and administration contract
between the Fund and UBS Global AM which has been proposed by Fund management (“Proposed Contract”).
Overview and related information
On
February 11, 2009, the Board, including the Independent Directors, approved the
Proposed Contract, subject to shareholder approval, and recommends that you approve
the Proposed Contract in the form attached in Exhibit C to this Proxy Statement
(the Proposed Contract is marked to show differences with the existing investment
advisory and administration contract between the Fund and UBS Global AM (“Current
Contract”)).
The Proposed Contract modifies the fee structure paid by the
Fund by (1) reducing the contractual advisory and administration fee from an annual
rate of 0.90% of the Fund’s average weekly net assets to an annual rate of
0.75% of the Fund’s average weekly net assets; and (2) applying the fee to
average weekly net assets attributable only to common shares, not APS. In addition,
it is proposed that certain other changes be made to the Current Contract in order
to modernize the contract.
UBS Global AM also believes that the modified fee
structure may better align the compensation of UBS Global AM with Fund performance
and the interests of common shareholders. Assets attributable to APS remain constant
throughout the life of the Fund (unless the Fund’s leverage is adjusted), while
the Fund’s assets attributable to common shares change over time as the market
value of the Fund’s portfolio of securities fluctuates. With the modified fee
structure in the Proposed Contract, advisory and administration fees are calculated
based only on assets attributable to common stock that fluctuate due to the performance
of underlying Fund securities.
UBS Global AM wishes to bring the Fund’s
advisory and administration fee more closely in line with those of its peer funds
by reducing the fee to be paid under the Proposed Contract. Finally, UBS Global
AM believes that the proposed clarifications and modernizing changes in the Proposed
Contract will offer additional flexibility in managing the Fund without impacting
the quality or nature of services that UBS Global AM provides to the Fund, nor UBS
Global AM’s duties and standard of care.
Proposed changes in fee structure
It is proposed that the Proposed Contract provide for an advisory and administration
fee at an annual rate of 0.75% of the Fund’s average weekly net assets attributable
only to common shares. The Current Contract provides for an advisory and administration
fee at an annual rate of 0.90% of the Fund’s average weekly net assets attributable
to both common shares and APS. Since August 1, 2006, UBS Global AM has waived the
portion of the advisory and administration fee attributable to APS pursuant to fee
waiver arrangements. UBS Global AM proposes, however, to make this exclusion from
the advisory and administration fee for APS a permanent part of the Proposed Contract.
In addition to the change to the contractual advisory and administration fee,
if the Proposed Contract is approved, UBS Global AM would voluntarily waive a significant
portion of the new contractual advisory and administration fee for an indefinite
period so that the common shareholders’ effective fee would be reduced to an
annual rate of 0.50% of the Fund’s average weekly net assets, calculated only
on assets attributable to common shares. This waiver arrangement reducing fees could
not be modified without the approval of the Fund’s Board. This is identical
to the effective advisory and administration fee that the
- 8 -
Fund currently pays to UBS Global AM due
to a fee waiver that became effective on August 1, 2008. UBS Global AM and the Fund’s Board have agreed to a series of waivers reducing fees over the years. From
August 1, 2006 through August 1, 2008, UBS Global AM had agreed to waive a portion
of the advisory and administration fees so the Fund’s effective fee was 0.83%
of average weekly net assets attributable only to common shares. Prior to August
1, 2006, predecessor fee waiver arrangements reduced the amount the Fund paid to
UBS Global AM.
During the fiscal year ended March 31, 2009, the Fund paid or
accrued investment advisory and administration fees of $4,091,499 to UBS Global
AM under the Current Contract, of which $2,422,270 was waived pursuant to the fee
waiver agreements. If the Proposed Contract had been in effect for the fiscal year
ended March 31, 2009, the investment advisory and administration fee accrued by
the Fund to UBS Global AM would have been $2,030,859, the equivalent of approximately 50% of the
investment advisory and administration fee accrued to UBS Global AM under the Current
Contract. Please keep in mind, however, that the percentage reduction in the contractual
rate does not correspond to a similar percentage reduction in the amount that the
Fund is actually currently paying because a significant portion of the current contractual
fees are being waived pursuant to the fee waiver arrangements that became effective
on August 1, 2008.
Other proposed modernizing changes
In addition to
the changes in the fee structure outlined above, UBS Global AM proposes to include
certain clarifying provisions in the Proposed Contract and to specifically recognize
the right of the Board and UBS Global AM to make certain non-material changes to
the Proposed Contract without shareholder approval. The Proposed Contract retains
most of the provisions of the Current Contract, including UBS Global AM’s duties
and standard of care. The changes from the Current Contract are discussed in detail
below.
Terms common to the Current and Proposed Contracts
The Current
and Proposed Contracts are very similar in most respects. Under each contract, UBS
Global AM must provide a continuous investment program for the Fund, including investment
research and management, and must determine from time to time what securities and
other investments will be purchased, retained or sold by the Fund. UBS Global AM
is responsible for placing purchase and sell orders for investments and for other
related transactions. UBS Global AM must also provide services in accordance with
the Fund’s investment objective(s), policies and restrictions. UBS Global AM
must maintain all books and records required to be maintained by UBS Global AM pursuant
to the 1940 Act and the rules and regulations promulgated thereunder with respect
to transactions on behalf of the Fund, and must furnish the Board with such periodic
and special reports as the Board reasonably may request.
Under both contracts,
UBS Global AM must administer the affairs of the Fund subject to the supervision
of the Board. For example, UBS Global AM must: provide the Fund with corporate,
administrative and clerical personnel and services as are reasonably deemed necessary
or advisable by the Board; arrange, but not pay, for the periodic updating, filing
and dissemination (as applicable) of the Fund’s Registration Statement, proxy
materials, tax returns and required reports; provide the Fund with, or obtain for
it, adequate office space and all necessary office equipment and services; and provide
the Board, on a regular basis, with economic and investment analyses and reports.
During the terms of the contracts, the Fund bears all expenses not specifically
assumed by UBS Global AM incurred in its operations and the offering of its shares.
Each contract provides that UBS Global AM is not liable for any error of judgment
or mistake of law or for any loss suffered by the Fund or its shareholders in connection
with matters to which the contract relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under the
contract.
Each contract becomes effective only if it has been first been approved
(i) by a vote of a majority of those directors of the Fund who are not parties to
the contract or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval, and (ii) by vote of a majority
of that Fund’s outstanding voting securities. Each contract remains effective
for successive annual periods of twelve months each, provided that such continuance
is specifically approved at least annually (i) by a
- 9 -
vote of a majority of those directors of
the Fund who are not parties to the contract or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or by a vote of a majority of the outstanding voting securities
of the Fund. Each contract may be terminated at any time, without the payment of
any penalty, by vote of the Board or by a vote of a majority of the outstanding
voting securities of the Fund on sixty days’ written notice to UBS Global AM
and may be terminated by UBS Global AM at any time, without the payment of any penalty,
on sixty days’ written notice to the Fund. Each contract automatically terminates
in the event of its assignment.
Comparison of Current and Proposed Contracts
The Current Contract was entered into on April 1, 2006 between the Fund and
UBS Global AM. In connection with an internal reorganization involving UBS Global
AM and UBS Global Asset Management (US) Inc. (“UBS Global AM (US)”), the
Board approved the transfer of the previous Investment Advisory and Administration
Contract (“Previous Contract”) to UBS Global AM, effective April 1, 2006.
This previous transfer between sister companies did not require shareholder approval. The Previous Contract was entered into on
May 26, 1993. The Previous Contract was approved by the sole initial shareholder at that time.
The discussion below provides explanations
about material differences to certain provisions between the Current Contract and
the Proposed Contract. Each of the provisions below is marked to show changes from
the Current Contract. A discussion of the changes follows each provision.
The
discussion of the material changes to the Current Contract below is qualified in
its entirety by the provisions of the Proposed Contract, a form of which is provided
as Exhibit C.
| I. | Duties as Investment Advisor. | |
| 2. | Duties as Investment Advisor. | |
| ... | ||
| (b) | UBS Global
|
Discussion of changes to duties as investment advisor. The changes to Section 2(b) are intended to update the language of this section and clearly state that the brokerage activities are conducted in accordance with applicable law and the investment advisor’s fiduciary duties.
- 10 -
| II. | Duties as Administrator | |
| 3. | Duties
as Administrator. UBS Global |
|
| ... | ||
| (f) | UBS Global AM has adopted compliance policies and procedures reasonably designed to prevent violations of the Investment Advisers Act of 1940, as amended, and the rules thereunder, has provided the Fund with a copy of such compliance policies and procedures (and will provide the Fund with any material amendments thereto) and agrees to assist the Fund in complying with the Fund’s compliance program adopted pursuant to Rule 38a-1 under the 1940 Act, to the extent applicable. | |
| Discussion of duties as administrator. The changes are intended to explicitly state UBS Global AM’s role in assisting with the Fund’s compliance obligations pursuant to Rule 38a-1 under the 1940 Act, which was adopted after the Current Contract was drafted and adopted. | ||
| III. | Expenses. | |
| 7. | Expenses. | |
| ... | ||
| (b) | Expenses borne
by the Fund will include but not be limited to the following (which shall be in
addition to the fees payable to and expenses incurred on behalf of the Fund by UBS
Global |
|
| ... | ||
- 11 -
| (d) | UBS Global
|
Discussion of changes to expenses. The changes assign to the Fund fees of Directors who may be interested persons for reasons other than an affiliation with UBS Global AM or one of its affiliates. Currently, one Director is so described and his Director fees have been paid by UBS Global AM since he became an interested person. If the Proposed contract is approved by shareholders, the cost of this Director’s fees would be shifted from UBS Global AM to the Fund. The increase in Fund expenses associated with this change is not expected to be a material amount. (Information regarding director compensation is provided below under “Additional information about the Board.”)
| IV. | Compensation | |
| 8. | Compensation. | |
| (a) | For the services
provided and the expenses assumed pursuant to this Contract, the Fund will pay to
UBS Global |
Discussion of changes to compensation. The changes provide for an advisory and administration fee at an annual rate of 0.75% of the Fund’s average weekly net assets attributable only to common shares. The Current Contract provides for an advisory and administration fee at an annual rate of 0.90% of the Fund’s average weekly net assets attributable to both common shares and APS. UBS Global AM has waived the portion of the advisory and administration fee attributable to the APS pursuant to fee waiver arrangements that first became effective on August 1, 2006. UBS Global AM proposes, however, to make this exclusion from the advisory and administration fee for assets attributable to APS a permanent part of the Proposed Contract. If the APS were modified or replaced with another type of leverage (e.g., variable rate demand preferred shares), the fee would continue to be calculated based on assets attributable only to the common shares, excluding assets attributable to the replacement sources of leverage.
| V. | Amendment of this Contract. | |
| 11. | Amendment
of This Contract. |
Discussion of changes to amendment of this agreement. The new provision is proposed to be added in order to provide greater flexibility to amend the Proposed Contract without shareholder approval if such approval is not required by law under the 1940 Act, as interpreted by the SEC and its staff. The 1940 Act provides significant protection to shareholders by generally requiring that material changes to investment advisory contracts be subject to the approval of shareholders. In certain circumstances, however, the SEC or its staff permits funds to make changes to investment advisory contracts when such changes are not deemed material and are not expected to change the quality of the investment advisory services provided. These changes remain subject to the approval of the Board, which provides protection to Fund shareholders. The Proposed Contract is drafted to clarify the ability of the Fund to make these changes without shareholder approval. This would avoid the Fund having to seek shareholder approval for all
- 12 -
changes, even if nonmaterial, as, interpreted
conservatively, is currently provided under the Current Contract, which may result
in significant Fund expenses. Under very limited circumstances, and pursuant to
SEC guidance, the Fund also may be able to terminate the Proposed Contract and replace
it with a new contract without shareholder approval.
Investment advisory services
provided by UBS Global AM would remain the same
As noted above in the section
entitled “Terms common to the Current and Proposed Contracts,” the services
to be provided by UBS Global AM to the Fund under the Proposed Contract would be
identical to those services that are currently provided under the Current Contract.
UBS Global AM will continue to provide a continuous investment program for the Fund,
including investment research and management with respect to all securities and
investments and cash equivalents in the Fund.
Information regarding UBS Global
AM and UBS AG
UBS Global AM serves as investment advisor and administrator
to the Fund. The principal business offices and addresses of UBS Global AM are One
North Wacker Drive, Chicago, IL 60606 and 51 West 52nd Street, New York, New York
10019-6114. UBS Global AM is an indirect wholly-owned subsidiary of UBS AG. UBS
AG is an internationally diversified organization with headquarters in Zurich and
Basel, Switzerland. UBS AG operates in many areas of the financial services industry.
The principal business addresses of UBS AG are Bahnhofstrasse 45, Zurich, Switzerland
and Aeschenvorstadt 1, Basel, Switzerland.
UBS Global AM currently serves as
investment manager, advisor or sub-advisor for a number of other investment companies.
Exhibit D to this Proxy Statement sets forth certain information regarding each
SEC registered investment company portfolio managed, advised or sub-advised by UBS
Global AM with investment objective(s) similar to those of the Fund.
Information
regarding the principal executive officers and directors of UBS Global AM is set
forth in Exhibit E, and each officer of the Fund who is an officer of UBS Global
AM is set forth in Exhibit F.
UBS Financial Services Inc., an affiliate of UBS
Global AM, provides certain services to the Fund and certain holders of outstanding
APS pursuant to an agreement with Deutsche Bank, the Fund’s auction agent for
APS. For the fiscal year ended March 31, 2009, UBS Financial Services Inc. received
from Deutsche Bank $168,320 (paid indirectly by the Fund) for these services. The
services would continue to be provided after the Proposed Contract is approved.
Basis for the Board’s approval of the Proposed Contract
At a meeting
of the Board on February 11, 2009, the Directors, including the Independent Directors,
considered the Proposed Contract and the other proposals in this Proxy Statement
with respect to the Fund. In its consideration of the approval of the Proposed Contract,
the Board considered the following factors:
Nature, extent and quality of
the services to be provided under the Proposed Contract. The Board considered
the nature, extent and quality of management services proposed to be provided to
the Fund under the Proposed Contract. The Board took note that UBS Global AM had
advised the Board that the investment advisory and administration services to be
provided by UBS Global AM to the Fund under the Proposed Contract would be identical
to those services provided under the Current Contract and that there is not expected
to be any diminution in the nature, extent and quality of services provided to the
Fund and its shareholders under the Proposed Contract. The Board’s evaluation
of the services expected to be provided under the Proposed Contract 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 UBS Global AM’s
investment management and other capabilities and the quality of its administrative
and other services. The Board took note that it had extensively reviewed the services
provided to the Fund by UBS Global AM at the Board’s July 2008 contract renewal
meeting, including information with respect to compliance, personnel and portfolio
management, and brokerage policies and practices. The Board also recognized that
it received information at regular meetings throughout the year regarding the services
rendered by UBS Global AM concerning the management of the Fund’s affairs and
- 13 -
UBS Global AM’s role in coordinating
providers of other services to the Fund. The Board also considered, based on its
knowledge of UBS Global AM and its affiliates, the financial resources available
to UBS Global AM and its parent organization, UBS AG and that UBS Global AM is an
experienced asset management firm. The Board also noted that management was proposing
certain clarifications and modernizing changes in the Proposed Contract, which are
discussed elsewhere in this proxy statement, but that these changes were not anticipated
to affect the nature, extent and quality of services currently provided and to be
provided under the Proposed Contract. The Board was also cognizant of, and considered,
the regulatory and litigation actions and investigations occurring in the past year
involving UBS AG and certain of its affiliates.
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 Proposed Contract.
Advisory fees and expenses.
The Board received information from UBS Global AM showing the impact of the
proposed changes to the Fund’s advisory and administration fees. The data received
by the Board included a Lipper, Inc. (“Lipper”) expense group comparison
that it received from management for its July 2008 annual contract renewal meeting.
Management noted that the Proposed Contract modifies the fee structure paid by the
Fund by: (i) reducing the contractual advisory and administration fee from an annual
rate of 0.90% of the Fund’s average weekly net assets (on assets attributable
to common shares and APS) to an annual rate of 0.75% of the Fund’s average
weekly net assets (on assets attributable only to common shares) and (ii) permanently
excluding assets attributable to APS from the application of the fee. In addition,
management proposed waiving, on a voluntary basis, a portion of the advisory and
administration fee so that the effective fee would be reduced to an annual rate
of 0.50% of the Fund’s average weekly net assets (on assets attributable only
to common shares); this waiver arrangement reducing fees could not be modified without
the approval of the Board. The Board noted management’s explanation that the
fees would cause the Fund’s contractual advisory and administration fees to
be in line with the median actual advisory and administration fee levels payable
by its peer funds (based on Lipper information received for the July 2008 annual
contract renewal meeting). In addition, the Board discussed with management its
reasons for proposing the changes to the contractual structure of the advisory and
administration fee, including that it could better align management’s interests
with that of the common shareholders. Management explained that under the Proposed
Contract, the Fund’s advisory and administration fees would be calculated based
only on assets attributable to common shares (not on assets attributable to both
common shares and APS). Management explained that this could better align the contractual
compensation structure for UBS Global AM with Fund performance. The Board determined
that the proposed investment advisory fees to be paid by the Fund represent reasonable
compensation to UBS Global AM in light of the services provided and the fees paid
by similar funds and such other matters as the Board considered relevant in the
exercise of its reasonable judgment. The Board did not consider institutional account
fees for accounts of similar investment types to those of the Fund in its review,
as it had recently reviewed those at its July 2008 meeting.
Fund performance.
The Board noted that it received information throughout the year at appropriate
periodic intervals with respect to the Fund’s performance, and had engaged
in an extensive review of Fund performance at its July 2008 meeting. Given that
the services to be provided under the Proposed Contract in comparison with the Current
Contract would not be changing and that the portfolio manager of the Fund was not
proposed to be changed specifically in connection with the approval of the Proposed
Contract, the Board did not extensively consider Fund performance in its consideration
of the Proposed Contract. The Board noted that at its July 2008 meeting it had found
the performance of the Fund acceptable and that recent performance had improved,
as the comparative information provided by Lipper for the July 2008 meeting showed
that the Fund’s performance was in the fourth quintile for the one-year period
and the fifth quintile for the three-, five- and ten-year periods and since inception
(with the first quintile representing that fifth of the funds in the Fund’s
Lipper comparative group (“Performance Universe”) with the highest performance
and the fifth quintile representing that fifth of the funds in the Performance Universe
with the lowest performance). The Board also noted at its July 2008 meeting management’s explanation that historically, the Fund had been managed in a more conservative
manner—focusing on higher quality credits and preservation of capital while
being less aggressive in seeking relative outperformance; management noted that
in response to changing markets over the past
- 14 -
few years, management had augmented the
Fund’s investment strategy universe to provide more flexibility and to broaden
asset classes and instruments that the Fund could invest in, resulting in more recent
improved performance.
Adviser profitability. In light of the considerations
described immediately following, profitability of UBS Global AM and its affiliates
in providing services to the Fund was not a factor considered by the Board. The
Board noted that it expects to receive cost, expense and profitability information
prior to the end of the initial term of the Proposed Contract and, thus, be in a
position to evaluate at that time whether any adjustments in Fund fees would be
appropriate in connection with a renewal of the Proposed Contract. The Board also
recognized that it had reviewed the profitability of UBS Global AM and its affiliates
at its July 2008 meeting. Management noted that it did not believe profitability
numbers would have changed appreciably since the last set of profitability numbers
provided to the Board for its July 2008 meeting.
Economies of scale. The Board considered whether any changes in the economies of scale
realized (or potentially realized) by UBS Global AM and any benefits the Fund may
incur from such economies of scale were proposed to be changed if the Proposed Contract
was approved. The Board recognized that the Fund’s current and proposed advisory
fee does not contain breakpoints and, therefore, it is not expected that any economies
of scale from which the Fund currently benefits would change in any significant
manner.
Other benefits to UBS Global AM. The Board considered other benefits
received by UBS Global AM and its affiliates as a result of its relationship with
the Fund. The Board noted that any such benefits were not proposed to change in
connection with approval of the Proposed Contract and that at its July 2008 meeting
it had determined that the profits and other ancillary benefits that UBS Global
AM and its affiliates received were considered reasonable.
In light of all of
the foregoing, at its meeting on February 11, 2009, the Board approved the Proposed
Contract for the Fund, subject to shareholder approval.
No single factor reviewed
by the Board was identified by the Board as the principal factor in determining
whether to approve the Proposed Contract. The Independent Directors were advised
by separate independent legal counsel throughout the process. The Board discussed
the Proposed Contract in a private session with their independent legal counsel
at which no representatives of UBS Global AM were present.
Except as discussed
above, the Board has not taken any action with respect to the Proposed Contract
since the beginning of the Fund’s last fiscal year.
The Board, including the Independent Directors, unanimously recommends
that shareholders vote
“FOR” the proposed investment advisory and administration contract.
If approved, the Proposed Contract would become effective with respect to the Fund as soon as reasonably practicable thereafter as determined by the Fund’s officers.
Proposal 4. Change in investment policy
Proposal 4 relates to a proposed change
in the Fund’s investment policy regarding the credit rating of insurers of
municipal securities in which the Fund invests. This change is intended to increase
the Fund’s investment flexibility given the current market environment and
the recent downgrades of bond insurers.
Proposed changes to investment policy
The Fund currently has an investment policy to invest at least 80% of its
net assets (including the amount of borrowing for investment purposes) in “Insured
Municipal Obligations, the income from which is exempt from regular federal income
tax.” This policy is “fundamental,” which means that it may not be
changed without shareholder approval. “Insured Municipal Obligations”
are defined as “municipal obligations that
- 15 -
are insured as to the timely payment of
both principal and interest by an entity that, at the time of investment, has a
claims-paying ability rated Aaa by Moody’s Investor Services, Inc. (“Moody’s”), AAA by Standard & Poor’s (“S&P”) or an equivalent
rating by another nationally recognized statistical rating organization (“NRSRO”).” This policy largely reflected industry conditions present in the municipal
bond market until relatively recently.
While the Fund’s
“fundamental” policy to invest 80% of its net assets in “Insured
Municipal Obligations” will remain the same, the Board recommends a change
in the definition of “Insured Municipal Obligations” to include municipal
obligations that are insured as to the timely payment of both principal and interest.
If approved, this policy could not be changed further without additional shareholder
approval. In addition, the Board has adopted the following new non-fundamental policies
(which could be changed in the future without a shareholder vote): (i) “the
issuing entity must, at the time of investment, have a claims-paying ability rated
at least investment grade by Moody’s or S&P or an equivalent rating by
another NRSRO”; (ii) to limit the Fund’s exposure to lower-rated issues,
a requirement is added that the Fund invest “at least 60% of its net assets
in securities rated, at the time of investment, at least Aa3 by Moody’s or
AA- by S&P or an equivalent rating by another NRSRO”; and (iii) the Fund
would be able to invest up to 20% of its net assets in Municipal Obligations that
are, at the time of investment, (1) backed by an escrow or trust account containing
sufficient US government or US government agency securities to ensure the timely
payment of principal and interest, (2) rated at least investment grade by Moody’s or by S&P or an equivalent rating by another NRSRO, or (3) deemed to
be of investment grade quality by the investment advisor. In addition, it is proposed
to limit the Fund’s investments in nonrated securities to 10% of its net assets.
Shareholders should note that only the first change discussed above (i.e., the change to the definition of “Insured Municipal Obligations”) is
subject to shareholder approval. The other changes do not require a shareholder
vote. However, because they are linked to the first change, they only would be implemented
if the shareholders approve the first change.
The following shows the proposed
changes to the Fund’s current investment policies:
| Under normal
circumstances, the Fund invests at least 80% of its net assets in Insured Municipal
Obligations, the income from which is exempt from regular federal income tax. “Insured
Municipal Obligations” are Municipal Obligations that are insured as to the
timely payment of both principal and interest. For purposes of this policy, the
Fund has adopted a non-fundamental policy that the insuring entity must |
Reasons for these changes
The foregoing investment policy changes are proposed
primarily to reflect the current market environment, in which many insurers (including,
Ambac, MBIA, XL Capital and FGIC) have recently been downgraded below AAA by S&P
or Aaa by Moody’s and may not be upgraded in the foreseeable future.
- 16 -
Without the investment policy changes, these
downgrades would have the effect of decreasing the universe of eligible securities
in which the Fund may invest. The other changes are intended to simplify the language
of the current investment policy.
UBS Global AM believes, however, that the proposed
changes should not result in a material increase of investment risk. In fact, UBS
Global AM’s current approach in managing the Fund already considers the credit
quality of both the insurer and the issuer. As such, before purchasing municipal
securities, UBS Global AM analyzes and reviews the financial strengths of both the
insurer and the issuer of the municipal securities. With respect to a number of
insured securities in which the Fund invests, the issuer actually has higher credit
quality than the insurers. UBS Global AM’s proposed additional policy that
would require 60% of the Fund’s net assets be rated Aa3/AA- or higher reflects this dual research focus and would permit UBS Global AM to
consider the rating of both the insurer and the underlying issuer to a greater extent
in security selection. Also, the Fund would not invest more than 10% of its net
assets in nonrated securities. UBS Global AM believes that this approach is appropriate
under the current market environment and is beneficial in maximizing the Fund’s
potential risk-adjusted return while limiting investment risk.
The changes to
the Fund’s policies are intended to address the impact of market developments
in connection with the downgrades to certain insurers and to increase the Fund’s
investment flexibility in pursuing its investment philosophy of investing in high
quality insured municipal securities. UBS Global AM and the Board believe that the
foregoing investment policy changes are important to the Fund’s ability to
compete with comparable insured municipal funds, many of which have already implemented
similar changes.
If shareholders approve the requested investment policy change,
it will be implemented as soon as practicable thereafter. If the change submitted
to your approval is rejected, UBS Global AM will consider the Fund’s investment
program in its entirety and determine whether other changes to the Fund’s investment
policies described above are appropriate in light of the current market environment.
The Board, including the Independent Directors, unanimously recommends that
shareholders vote
“FOR” the proposed investment policy change.
Proposal 5. Shareholder proposal recommending that the Board take action, subject to market conditions, to afford common and preferred shareholders an opportunity to realize the net asset value of their shares
The Fund has received the following
proposal and supporting statement from a shareholder of the Fund, Full Value Offshore
Partners, L.P. (“FVOP”), a Cayman Islands hedge fund, advising the Fund
that, at the time its proposal was submitted, it had beneficial ownership of 43,589
common shares of the Fund, with a market value satisfying a regulatory threshold
continuously for the preceding year. FVOP’s US address is Park 80 West –
Plaza Two, Suite 750, Saddle Brook, NJ 07663.
For the reasons set forth in detail
in the Statement of the Board of Directors, which follows FVOP’s supporting
statement, the Board unanimously supports FVOP’s proposal and urges all
shareholders to vote “FOR” it for the reasons noted below.
The
Board and the Fund accept no responsibility for the accuracy of FVOP’s proposal
or its supporting statement. The text of the proposal and supporting statement is
as follows:
Proposal. The board is requested to take action, subject to
market conditions, to afford common and preferred shareholders an opportunity to
realize the net asset value of their shares.
- 17 -
SUPPORTING STATEMENT OF THE SHAREHOLDER
Since its launch in 1993 the Fund’s
common shares have persistently traded at a discount to their net asset value. For
example, as of December 5, 2008, the common shares were trading at a whopping 20%
discount from NAV.
In addition, the preferred shares are now illiquid and can
only be sold at a steep discount from their $50,000 liquidation value.
We think
both the common shareholders and the preferred shareholders deserve an opportunity
to realize the intrinsic value of their shares. If you agree, please vote for this
proposal.
SUPPORTING STATEMENT OF THE BOARD OF DIRECTORS
The Fund’s Board supports the shareholder
proposal. The Board therefore recommends that shareholders vote FOR the FVOP proposal.
Reasons for the Board’s Recommendation
1. The Board understands FVOP’s proposal as a request for actions that benefit the Fund’s shareholders
The Board regards the FVOP proposal as a recommendation to the Board to take
actions that are beneficial to the Fund and all of the Fund’s shareholders.
This is a goal that has been shared by the Board and UBS Global AM and pursued since
the Fund’s inception. The Board is fully committed to actions which will benefit
the Fund and will permit all shareholders to increase the value of their investments.
As further discussed in this proxy statement, the Board and UBS Global AM regularly
evaluate and, where appropriate, implement such measures.
When taking actions
to benefit shareholders, the Board and UBS Global AM have been and continue to be
mindful of the fundamental characteristics of the Fund as a closed-end fund. The
Board’s actions are intended to further the Fund’s investment objective
of a high level of current income exempt from federal income tax, consistent with
the preservation of capital. The Board believes that the Fund is intended for shareholders
with long-term investment objectives, and that most of the Fund’s common shareholders
are in fact long-term investors. Thus, the Board and UBS Global AM believe strongly
in providing the Fund with a solid investment program that produces a competitive
investment record. This belief underlies the actions taken by the Board and UBS
Global AM over the years, including the proposed change to the Fund’s investment
policies described elsewhere in the proxy statement.
The Board and UBS Global
AM are well aware that the market price of the Fund’s shares often is lower
than the Fund’s net asset value (“NAV”) per share (i.e., the
Fund’s shares often trade at a discount). The Board regularly considers whether
measures to reduce the Fund’s discount would be in the best interests of the
Fund. Radical actions to reduce the discount, such as conducting share repurchases
or tender offers, often bring about only a temporary reduction in the discount,
may involve substantial transaction costs, would result in a smaller fund with a
higher expense ratio and less investment flexibility, lower yield and likely lower
total returns, and would benefit short-term shareholders far more than long-term
shareholders. Open-ending the Fund would eliminate the discount but the Fund would
have to significantly change its structure, many of its current strategies could
no longer be used, and the Fund could no longer use leverage to the extent that
it can as a closed-end fund, which could reduce tax-exempt dividends paid to common
shareholders. Each of these consequences is taken into account by the Board when
considering what actions will best serve the interests of the Fund and its shareholders.
- 18 -
2. The Board takes the concerns of the
Fund’s auction preferred shareholders very seriously, and has taken steps to
restore liquidity and to redeem their auction preferred shares (“APS”)
The Board notes FVOP’s observation that preferred shares have become
illiquid. The Board and UBS Global AM have been extremely concerned about the loss
of liquidity for APS holders resulting from the unprecedented auction failures across
the closed-end municipal bond fund sector which began in early 2008. Those failures
are due to market forces and not the actions of the Fund. However, the Board and
UBS Global AM have considered various options and have taken effective steps to
mitigate this situation. Most notably, in July 2008, the Board approved, and the
Fund implemented, a tender option bond (“TOB”) program to provide the
Fund with an alternative means of partially leveraging its assets. The TOB program
has enabled the Fund to redeem a substantial portion of its APS at their $50,000
value per share, while preserving its leveraged structure and even lowering the
cost of the Fund’s leverage compared with maximum dividend rates paid on APS.
The Board approved, and the Fund redeemed, 800 of its APS in September 2008, representing
a total of 19% of the Fund’s outstanding APS. In December 2008, the Board approved,
and the Fund redeemed, an additional 300 of its APS, representing an additional
8.8% of the Fund’s then outstanding APS. This served to ensure that in the
difficult market environment the Fund would continue to meet its asset coverage
requirements so that it would be able to continue to declare and pay monthly dividends
to common shareholders. The December redemption had the effect of decreasing the
Fund’s use of leverage. These actions have restored partial liquidity to APS
holders. In addition, the Board and UBS Global AM continue to evaluate other options
that may be in the best interests of the Fund and its shareholders, such as possibly
restructuring the remaining APS in a manner that would make the APS eligible for
investment by money market funds (subject to regulatory requirements). The Board
is committed to working to restore liquidity to APS holders at full value while
preserving the long-term interests of the Fund; however, actions must be taken pursuant
to regulatory requirements and in the face of unprecedented credit market challenges
which can impact the timing and structuring of potential solutions.
3. The
Board cautions that FVOP may have hidden motivations and interests that may not
be consistent with those of long-term shareholders
While the Board supports
the view that it should continue to take actions to increase value, the Board also
wants all shareholders to understand that FVOP is not a typical investor in the
Fund. FVOP is part of a group of hedge funds led by hedge fund manager Phillip Goldstein
(“Goldstein hedge funds”) that frequently targets closed-end funds and
tries to dissolve or significantly restructure them in ways that are not necessarily
beneficial to all shareholders. Just last year, the Goldstein hedge funds filed
a complaint in a Maryland court seeking to involuntarily dissolve the Fund on the
grounds that the stockholders of the Fund were “so divided” at its 2008
annual shareholders’ meeting (“2008 Meeting”) that directors could
not be elected. The re-election of the Fund’s directors at the 2008 Meeting
was not possible due to a lack of quorum at the meeting, which was the direct result
of the Goldstein hedge funds’ active solicitation of shareholder proxies and
their failure to attend and vote the shares for which they had solicited proxies.
By not attending the meeting, the Goldstein hedge funds prevented a quorum for the
conduct of business at the meeting despite repeated efforts by the Fund to get more
investors to vote their shares. We believe that this strategy of frustrating or
impeding the normal functioning of shareholder meetings is inconsistent with federal
regulations and a misuse of corporate governance processes, resulting in increased
costs for all shareholders.
The Fund believed that the complaint filed by the
Goldstein hedge funds had no merit, and it was unilaterally withdrawn by the Goldstein
hedge funds, which terminated the litigation. However, the Fund learned firsthand
(both through the tactics used to prevent a successful 2008 annual meeting and the
lawsuit) about the destructive tactics of the Goldstein hedge funds. The Board believes
that in light of the past actions by its affiliates, FVOP may have similar motives
that are not apparent on the face of its proposal. The Board believes that FVOP
may wish to take actions which, as discussed above, may not be in the best interests
of the Fund and all of its shareholders. FVOP may not be genuinely interested in
seeing the current Board take actions to benefit the Fund. Nonetheless, the Board
remains committed to continuing its ongoing efforts to help the Fund’s shareholders
realize the intrinsic value of their shares, subject to market conditions and the
best interests of the Fund and all of its shareholders.
- 19 -
The Board, including the Independent
Directors, unanimously recommends that shareholders vote
“FOR” FVOP’s
proposal.
Proposal 6. Shareholder proposal to terminate the investment advisory agreement between the Fund and UBS Global AM
The Fund has received the following
proposal and supporting statement from a shareholder of the Fund, Karpus Management,
Inc. (“Karpus”), which has advised the Fund that at the time its proposal
was submitted, it had beneficial ownership of 2,010,384 common shares of the Fund,
with a market value satisfying a regulatory threshold continuously for the preceding
year. Karpus’s address is 183 Sully’s Trail, Pittsford, NY 14534.
For the reasons set forth in detail in the Opposing Statement, which follows Karpus’s supporting statement, the Board unanimously opposes Karpus’s proposal
and urges all shareholders to vote “AGAINST” it.
The Board and
the Fund accept no responsibility for the accuracy of Karpus’s proposal or
its supporting statement. The text of the proposal and supporting statement is as
follows:
Proposal. The investment advisory agreement between the Fund
and UBS Global Asset Management shall be terminated.
SUPPORTING STATEMENT OF THE SHAREHOLDER
As shareholders of PIF, we are concerned with the persistently wide discount to net asset value (“NAV”). As the prospectus states, “The Fund’s board of directors has determined that it will from time to time consider taking action to attempt to reduce or eliminate any discount.” Additionally, the Fund also specifically committed to at least annually consider: “...action either to repurchase shares of the common stock in the open market or to make a tender offer for shares of the common stock at their net asset value.” Since the fund’s inception in 1993, we cannot find any evidence that the Fund has repurchased any shares or considered making a tender offer for shares at NAV.
The discount on PIF has consistently been among the widest of all closed-end municipal bond funds. Indeed, the 10-year average discount for PIF through 12/31/2008 was -12.2% while the average municipal closed-end fund discount was -4.3% during this same time period. (Source: Bloomberg). In fact, there is no other closed-end municipal bond fund that has carried a wider discount during this time period.
Perhaps the explanation for the persistently wide discount of PIF is that the market has little confidence in the management of the fund. UBS has a relatively small presence in the closed-end fund world. Additionally, UBS has recently been the subject of much negative press, including its involvement and self interest in marketing auction rate preferred securities prior to the auction failures. Shareholders should be given an opportunity to realize the true value of their shares. The discount on our Fund has been hopelessly wide, and we have no reason to believe it will narrow without terminating the investment advisory agreement.
The board of directors has a duty to monitor fund performance and should have been proactive in seeking a sub-advisor. It is unacceptable that they have allowed the fund to consistently perform below average and the discount to remain wide. To address these issues, we believe that a change to a new investment adviser is necessary. If the board of directors cannot recognize this and continues to do nothing, we will consider taking action to replace the board with directors whose interests better align with shareholders.
- 20 -
OPPOSING STATEMENT OF THE BOARD OF DIRECTORS
The Fund’s Board opposes the shareholder
proposal and believes it is in your best interests to maintain your Fund’s
investment advisory and administration agreement with UBS Global Asset Management
(Americas) Inc. (“UBS Global AM”). For the reasons discussed below, the
Board therefore recommends that shareholders vote AGAINST the Karpus proposal.
Reasons for the Board’s Recommendation
The Fund’s Board has
reviewed and considered the Karpus proposal but believes that it is not in the best
interests of the Fund and its shareholders. As described further below:
| • | Karpus fails to point out that share repurchases and tender offers often benefit short-term shareholders more than (and sometimes at the expense of) long-term shareholders, may not reduce the discount in the long term, and may drastically alter the characteristics of the Fund; | ||
| • | Karpus’s discount information is misleading; an average of monthly discount information provided by Lipper, Inc. indicates that over the one-year period ended March 31, 2009, the Fund’s monthly average discount was 11.3%, in line with the median discount of its Lipper Leveraged Insured Municipal Debt Funds peer group of 11.4% over the same time period; | ||
| • | UBS Global AM has taken a series of measures over the years to enhance investment performance and shareholder value, including investment policy modifications and reductions in its advisory and administration fee; | ||
| • | The Fund has a competitive performance record relative to its Lipper peer group; | ||
| • | UBS Global AM’s risk-aware investment process and rigorous credit analysis have enabled the Fund to focus on higher quality securities, making it a strong investment choice during times of increased market volatility; and | ||
| • | Karpus’s proposal would leave the Fund orphaned with no investment advisor, and would result in the termination of an advisor with a record of careful stewardship during recent unprecedented market challenges. |
1. Karpus does not adequately consider
the long-term interests of Fund shareholders
Despite Karpus’s assertions,
the Board frequently considers the difference between the Fund’s market price
per share and its net asset value (“NAV”) per share (i.e., the
discount or premium, as applicable) and considers whether measures to reduce the
Fund’s discount, such as share repurchases, tender offers and other measures,
would be in the best interests of the Fund and its shareholders. However, share
repurchases and tender offers tend to benefit short-term shareholders far more than
– and sometimes to the detriment of – long-term shareholders. We want
shareholders to understand that, while share repurchases and tender offers may temporarily
narrow a fund’s trading discount, any resulting reduction in the trading discount
is often short-lived. When the share repurchase or tender offer is over, the fund’s discount often returns and persists. Share repurchases and tender offers
also may involve substantial transaction costs and expenses for the Fund (and, indirectly,
its shareholders), which are not addressed at all by Karpus. Moreover, share repurchases
and tender offers would result in a smaller fund, which may result in a higher expense
ratio, less investment flexibility, fewer assets and lower yields and likely lower
total returns. Finally, share repurchases and tender offers are especially difficult
to implement for funds that use leverage for investment purposes. The transactions
may require the fund to reduce its leverage, resulting in reduced dividends, possible
adverse tax consequences to shareholders, and potential drastic alterations of the
fundamental characteristics of the fund.
- 21 -
Karpus is representative of a group of hedge
funds that frequently invests in closed-end funds to take advantage of short-term
arbitrage opportunities. Based on Karpus’s past actions with other closed-end
funds, the Board believes that Karpus, unlike most of the Fund’s investors,
may be a short-term shareholder looking for a quick profit through the implementation
of measures such as share repurchases and tender offers. UBS Global AM has informed
the Board that Karpus frequently targets closed-end funds and that Karpus’s
actions and interests may not be consistent with the interests of long-term shareholders.
The Board does not believe that terminating the investment advisory and administration
agreement between the Fund and UBS Global AM and implementing the measures suggested
by Karpus are in the best interests of the Fund and its shareholders, and the Board
recommends that shareholders vote AGAINST Karpus’s proposal.
2. UBS Global AM and the Board have taken a series of measures to make the Fund more
competitive
Throughout the years, numerous actions have been taken by the
Board and UBS Global AM to improve the Fund’s investment strategies, investment
performance and level of fees and expenses in the interests of the Fund and its
shareholders. These actions have contributed to increased investment performance
and shareholder value.
Expanding the Fund’s investment strategies to improve performance. The Fund was designed to provide investors with a more risk-aware investment program than many similar funds. Over time, the Board and UBS Global AM have discussed ways to improve the Fund’s relative performance while retaining its initial investment philosophy and, as a result, the Board has provided more flexibility to UBS Global AM in its management of the Fund. Some examples of these investment policy modifications include:
| • | In 2003, the Board changed the Fund’s investment strategies to allow the Fund to invest in individual securities having a maturity of less than 10 years and approved the issuance of two additional series of auction preferred shares (“APS”) in order to increase the Fund’s leverage and seek to improve performance. | ||
| • | In 2003, UBS Global AM began utilizing futures contracts to manage yield curve positioning and adjust fund duration. | ||
| • | In 2005, the Board broadened the Fund’s investment policy to allow investment of up to 20% of the Fund’s net assets in non-insured municipal obligations to include obligations that are rated below the highest rating category but are still investment grade, in order to increase the Fund’s earning potential. | ||
| • | In 2005, UBS Global AM began to rely on the Fund’s ability to make limited investments in municipal bonds that are subject to the alternative minimum tax in order to generate additional incremental income and further diversify the Fund’s portfolio. | ||
| • | In July 2008, the Board approved, and the Fund implemented, a tender option bond (“TOB”) program to provide the Fund with an alternative means of partially leveraging its assets and to enable the Fund to redeem a portion of its APS. The TOB program has lowered the cost of the Fund’s leverage relative to the maximum dividends paid on failed auctions. The Board subsequently approved, and the Fund redeemed, 800 shares of its APS in September 2008 representing a total of 19% of the Fund’s outstanding APS. | ||
| • | In December 2008, the Board approved, and the Fund redeemed, an additional 300 shares of its APS, representing an additional 8.8% of the Fund’s then outstanding APS. This served to ensure that in the difficult market environment the Fund would continue to meet its asset coverage |
- 22 -
| requirements so that it would be able to continue to declare and pay monthly dividends to common shareholders. This redemption had the effect of decreasing the Fund’s use of leverage. | |||
| • | The Board recently approved, subject to shareholder approval at the upcoming Annual Meeting, a change in the Fund’s investment policy regarding the minimum credit rating of insurers of municipal securities in which the Fund invests. This change is intended to increase the Fund’s investment flexibility given the current market environment and the downgrading of bond insurers. UBS Global AM believes that the underlying credit quality of the issuers of many insured municipal bonds frequently offsets the lower rating of the bond’s insurer. UBS Global AM has informed the Board that it sees significant opportunity for long-term investors in many areas of the municipal bond market. |
We believe the steps already implemented have contributed to improve the performance of the Fund relative to its peer funds over time.
Reducing the advisory and administration fee. UBS Global AM has waived a significant portion of its investment advisory and administration fee since 2003. In 2003, the Board approved a fee waiver which reduced the effective investment advisory and administration fee to 0.70% of the Fund’s average weekly net assets. In 2004, UBS Global AM increased the fee waiver, which reduced the effective investment advisory and administration fee to 0.60%. In 2006, the Board determined to calculate the investment advisory and administration fee only on net assets attributable to common shares, rather than on all assets (including those attributable to APS), further significantly reducing the Fund’s total expense ratio. In July 2008, the Board approved a voluntary fee waiver proposed by UBS Global AM which further reduced the effective advisory and administration fee to 0.50% of the Fund’s average weekly net assets attributable only to common shares. Finally, at the upcoming Annual Meeting, the Board and UBS Global AM have proposed, and you will be asked to approve, a new advisory and administration agreement between the Fund and UBS Global AM which would reduce the contractual advisory and administration fee. This history of fee changes was intended to make the Fund more competitive with comparable closed-end funds, contribute to improved performance and contribute to reducing the trading discount that has existed.
The implementation of these measures together
with the Fund’s risk-aware investment approach has benefited the Fund (as evidenced
by the Fund’s competitive performance compared to its peer group, particularly
in the past 1-, 3- and 5-year periods as shown below). The Board therefore believes
that it is in the best interests of the Fund to continue to retain UBS Global AM
as the Fund’s investment advisor, and recommends that shareholders vote
AGAINST Karpus’s proposal.
3. The Fund has a competitive performance
record and benefits from the continuous management of UBS Global AM
Fund
shareholders benefit from the experience and resources of UBS Global AM. As of December
31, 2008, UBS Global AM had approximately $144 billion in assets under management.
Moreover, UBS Global AM is an indirect, wholly-owned asset management subsidiary
of UBS AG and a member of the UBS Global Asset Management division, which had approximately
$539 billion in assets under management worldwide as of December 31, 2008. UBS Global
AM’s expertise and resources enable it to provide your Fund with first rate
research, trading, and investment management support. Kevin McIntyre, the Fund’s
portfolio manager, has served as the Fund’s portfolio manager since 2005. Mr.
McIntyre is a director (since 2003) and portfolio manager (since 2005) of UBS Global
AM. He is also head of municipal trading since 2002. Prior to that he was a trader
and assistant portfolio manager with UBS Global AM.
As shown in the table below,
the Board believes that the Fund’s investment approach and recent performance
has benefited shareholders and has been competitive (based on both net asset value
and market price) relative to the peer group of other funds categorized as Leveraged
Insured Municipal Debt Funds by Lipper, Inc., an independent third party provider
of comparative fund data (“Lipper peer group”):
- 23 -
Insured Municipal Income Fund Inc. as of March 31, 2009
| Average Annual Total Return(1) | 1-Year | 3-Year | 5-Year | 10-Year | ||||||||
| Fund Net Asset Value Total Return(3) | -0.39 | % | 0.37 | % | 1.56 | % | 3.45 | % | ||||
| Lipper Insured Muni Debt Funds (Leveraged) Classification Net Asset Value Total Return median(4) | -4.01 | % | -0.37 | % | 1.27 | % | 3.83 | % | ||||
| Rank in Lipper Classification Based on Net Asset Value Total Return(4) | 3 out of 24 | 8 out of 24 | 9 out of 24 | 12 out of 18 | ||||||||
| Fund Market Price Total Return(2) | -3.32 | % | 0.38 | % | 0.69 | % | 3.69 | % | ||||
| Lipper Insured Muni Debt Funds (Leveraged) Classification Market Price Total Return median(4) | -6.20 | % | -1.85 | % | 0.26 | % | 3.30 | % | ||||
| Rank in Lipper Classification Based on Market Price Total Return(4) | 6 out of 24 | 4 out of 24 | 8 out of 24 | 6 out of 18 | ||||||||
| Performance data represents past performance, which does not guarantee future results. Investment return and net asset and market values will fluctuate, and you may have a gain or loss when you sell your shares. Current performance may differ from figures shown. |
| (1) | Total return calculations represent the average annual changes in value of an investment over the periods indicated. |
| (2) | The Fund’s market price returns assume that all dividends and other distributions, if any, were reinvested at prices obtained under the Fund’s dividend reinvestment plan. |
| (3) | The Fund’s net asset value (“NAV”) returns assume, for illustration only, that dividends and other distributions, if any, were reinvested at the NAV on the payable dates. |
| (4) | Source: Lipper Inc. |
| UBS Global AM’s extensive experience has provided the Fund with competitive investment performance, which leads the Board to recommend that shareholders vote AGAINST Karpus’s proposal. |
| 4. The Fund’s focus on high credit quality makes it a strong investment choice during times of increased market volatility, notwithstanding the Fund’s discount |
| The competitive investment record of the Fund is the result of UBS Global AM’s solid investment program for the Fund. Consistent with the Fund’s investment objective, UBS Global AM seeks to maximize after-tax total return while minimizing volatility, and to deliver consistent, above-average returns. This means the Fund does not intend to pursue a higher yield at the risk of losing principal. The Fund follows a disciplined and diversified risk-aware investment process which takes advantage of UBS Global AM’s research capabilities, including credit and macroeconomic analysis. Using a top-down investment process supported by extensive research, the Fund seeks to capitalize on inefficiencies in the municipal bond markets across different sectors, maturities, bond structures and issuers. |
| The Board and UBS Global AM believe that for a fixed income fund, the biggest long-term risk to principal is the creditworthiness of the issuers in which the fund invests. Therefore, in choosing investments for the Fund, UBS Global AM focuses on both the credit quality of the issuer of the municipal security and the |
- 24 -
credit quality of the insurer. UBS Global
AM uses proprietary quantitative, credit, market and economic research to make portfolio
management decisions.
UBS Global AM’s risk-aware investment process and
rigorous credit analysis has enabled the Fund to focus on higher quality securities,
which can be particularly beneficial during periods of market volatility. The Fund’s performance has benefited from UBS Global AM’s focus: as of March 31,
2009, for the 1- and 3-year trailing periods the Fund outperformed 88% and 68% of
its Lipper peer group based on net asset value, and 76% and 84% of its Lipper peer
group based on market price.
As with other municipal closed-end funds within
the Fund’s peer group, the market price of the Fund’s shares often is
lower than the Fund’s NAV per share (i.e., the Fund’s shares often trade
at a discount). However, in evaluating the Fund as an investment vehicle and UBS
Global AM’s performance as a manager, the Board believes that the discount
must be weighed against the Fund’s relative investment performance and its
adherence to its investment philosophy. The Fund does not seek to place itself among
the highest yielding funds through investments in riskier bonds. While a higher
yield might reduce a closed-end fund’s trading discount at times, it can be
a recipe for losing principal, which is inconsistent with the Fund’s long-term
focus on balance and conserving principal.
Karpus’s assertions about the
Fund’s discount levels are misleading. Karpus compares the Fund to the entire
universe of closed-end municipal bond funds, some of which have investment objectives
and strategies that differ substantially from those of the Fund. The Board and UBS
Global AM believe the Fund’s discount should be evaluated over time relative
to the median discount of its Lipper peer group – the funds with which the
Fund actually competes. As of March 31, 2009, the Fund traded at a 12.9% discount
to its NAV, relative to a median discount of 10.6% for its Lipper peer group. However,
discount levels vary continuously and considering averages can be more informative
than considering specific points in time. An average of monthly discount information
provided by Lipper, Inc. indicates that over the one-year period ending March 31,
2009, the Fund’s average discount was 11.3%, which was in line with a median
discount of 11.4% for its Lipper peer group over the same time period. (Source:
Lipper).
The Board believes that the presence of a discount does not, by itself,
necessitate the drastic step of terminating the Fund’s investment advisory
and administration agreement with UBS Global AM, particularly in light of the Fund’s competitive performance and other positive indicators, as described above.
The Board therefore recommends that shareholders vote AGAINST Karpus’s
proposal.
5. The Fund’s investment advisor is not the primary focus of
negative press
Karpus makes reference to UBS being the subject of negative
press. The Board has followed these press articles closely. The press statements
do not relate to actions taken by UBS Global AM or the individuals responsible for
managing your Fund. The statements made in the press relate to entities that are
separate from UBS Global AM, and do not relate to any actions taken by UBS Global
AM or its personnel, the Fund or to the management of the Fund. In addition, the
Board regularly reviews the performance and compliance policies and reports of its
investment advisor. The Board receives in-person reports from the Fund’s chief
compliance officer (“CCO”) on at least a quarterly basis. Also, between
regular Board meetings, individual Board members receive updates on matters that
might impact the Fund or UBS Global AM. The Board believes that UBS Global AM maintains
high standards of regulatory compliance. The Board therefore recommends that shareholders
vote AGAINST Karpus’s proposal.
6. Karpus’s proposal is not
viable
Karpus does not propose any other advisor for the Fund – just
that the current advisor be terminated. There is no guarantee that the Fund’s
Board would be able to find and retain a qualified and reputable investment advisor
that would agree to assume the management of the Fund for a reasonable cost, especially
given the continuing attacks from hedge funds criticizing management and attempting
to provoke drastic responses. In that case, there is a possibility that your Fund
could be orphaned without any advisor at all, making it difficult or impossible
for the Fund to carry out any portfolio management,
- 25 -
research or trading – the Fund’s
investment program would be completely paralyzed. Karpus’s proposal also ignores
the significant expenses that the Fund and its shareholders could incur in replacing
UBS Global AM.
Even more to the point, the Board has the ability to terminate
an investment advisory agreement at any time if it believes that it is in the best
interests of the Fund. The Board does not need a shareholder vote. The Board, however,
is in favor of continuing to retain UBS Global AM as investment advisor. As explained
above, the Board believes that Fund shareholders benefit from the services, experience
and resources of UBS Global AM. UBS Global AM and its affiliates and predecessors
have been managing the Fund since 1993 – charting a careful course for sixteen
years. Its careful stewardship during recent unprecedented market challenges –
reflected in the strong relative performance cited above – shows that its long-term,
dedicated approach has merit. The Board therefore believes that the proposal
is not in the best interests of the Fund and recommends that shareholders vote AGAINST Karpus’s proposal.
The Board, including the Independent
Directors, recommends that shareholders vote
“AGAINST” Karpus’s proposal.
- 26 -
Additional information about the Board
The Board met eleven times during the fiscal
year ended March 31, 2009. Each director attended 75% or more of the Board meetings
during the last fiscal year. The Fund’s directors are not required to attend
the Fund’s annual meetings; Mr. Garil, a director, attended the annual meeting of
shareholders in 2008.
The Board has established an Audit Committee that
acts pursuant to a written charter (“Audit Committee Charter”) and is
responsible for, among other things: (i) overseeing the scope of the Fund’s
audit, (ii) overseeing the Fund’s accounting and financial reporting policies,
practices and internal controls; and (iii) approving, and recommending to the Board
for ratification, the selection, appointment, retention or termination of the Fund’s independent registered public accounting firm, as well as determining the
compensation thereof. The Audit Committee Charter is available on UBS Global AM’s Web site at http://www.ubs.com/1/e/globalam/Americas/globalamus/globalamusii/ii_closed
end_funds.html, and a copy of the charter is attached as Exhibit A. In furtherance
of its duties, the Audit Committee also is responsible for, among other things:
receiving reports from the Fund’s independent registered public accounting
firm regarding its independence and discussing any disclosed relationships or services
that may diminish the objectivity and independence of the independent registered
public accounting firm; inquiring of UBS Global AM and the Fund’s independent
registered public accounting firm as to the Fund’s qualification under Subchapter
M of the Internal Revenue Code and the amounts distributed and reported to shareholders;
and reviewing with the independent registered public accounting firm any problems
or difficulties the independent registered public accounting firm may have encountered
during the conduct of the audit.
Although the Audit Committee has the responsibilities
set forth in its Audit Committee Charter and described above, it is not responsible
for planning or conducting the Fund’s audit or determining whether the Fund’s financial statements are complete and accurate and are in accordance with
US generally accepted accounting principles. In fulfilling their responsibilities
under the Fund’s Audit Committee Charter, it is recognized that (i) the members
of the Audit Committee are not full-time employees of the Fund; (ii) it is not the
duty or the responsibility of the Audit Committee or its members to conduct “field
work” or any other types of auditing and accounting reviews or procedures or
to set auditor independence standards; and (iii) each member of the Audit Committee
shall be entitled to rely on: (a) the integrity of those persons within or outside
of the Fund from whom he or she receives information; (b) the accuracy of the financial
and other information provided to the Committee absent actual knowledge to the contrary
(which shall be promptly reported to the Board); and (c) statements made by the
officers and employees of the Fund, UBS Global AM or other third parties as to any
information technology, internal audit and other non-audit services provided by
the independent registered public accounting firm to the Fund. The review of the
Fund’s financial statements by the Fund’s Audit Committee is not of the
same quality as the audit performed by the independent registered public accounting
firm.
None of the members of the Audit Committee has any relationship to
the Fund that may interfere with the exercise of his or her independence from management
or the Fund, and each is independent as defined under the listing standards of the
New York Stock Exchange (“NYSE”) applicable to closed-end funds. Each
member of the Fund’s Audit Committee is also a member of a similar committee
established by the boards of certain other investment companies for which UBS Global
AM or an affiliate serves as investment advisor, sub-advisor or manager. The Audit
Committee met six times during the fiscal year ended March 31, 2009, and each
member attended 75% or more of those meetings.
The Fund’s Audit Committee
has: (a) reviewed and discussed the Fund’s audited financial statements with
management; (b) discussed with the independent registered public accounting firm
the matters required to be discussed by Statement on Auditing Standards No. 61,
as amended, as adopted by the Public Company Accounting Oversight Board (“PCAOB”) in Rule 3200T; (c) received written disclosures and the letter from the independent
registered public accounting firm required by Independence Standards Board Standard
No. 1, as adopted by the PCAOB in Rule 3600T, and has discussed with the independent
registered public accounting firm its independence; and (d) based upon its review
of the above, recommended to the Board that the Fund’s audited financial statements
be included in the Fund’s annual report to shareholders for the fiscal year
ended March 31, 2009. The members of the Audit
- 27 -
Committee are Richard Q. Armstrong, Alan
S. Bernikow, Richard R. Burt, Bernard H. Garil and Heather R. Higgins.
The
Board has also established a Nominating and Corporate Governance Committee that
acts pursuant to a written charter (“Nominating and Corporate Governance Committee
Charter”). The Nominating and Corporate Governance Committee is responsible
for, among other things, identifying, selecting, evaluating and recommending to
the Board candidates to be nominated as additional Independent Directors of the
Board; making recommendations to the Board with respect to compensation of Board
and committee members; overseeing an annual evaluation of the Board and its committees;
reporting on such evaluation to the Board; and performing such other governance
functions as the Board may from time to time delegate to the Nominating and Corporate
Governance Committee. A copy of the Nominating and Corporate Governance Committee
Charter is not available on UBS Global AM’s Web site, but a copy of the Nominating
and Corporate Governance Committee Charter is attached as Exhibit B. The Nominating
and Corporate Governance Committee currently consists of Messrs. Burt and Garil
and Ms. Higgins, none of whom is an “interested person” for purposes of
the 1940 Act, and all of whom are independent as defined under listing standards
of the NYSE applicable to closed-end funds. The Nominating and Corporate Governance
Committee met once during the fiscal year ended March 31, 2009, and each member
attended that meeting.
In nominating candidates, the Nominating and Corporate
Governance Committee believes that no specific qualifications or disqualifications
are controlling or paramount, or that specific qualities or skills are necessary
for each candidate to possess. In identifying and evaluating nominees for director,
the Nominating and Corporate Governance Committee takes into consideration such
factors as it deems appropriate. These factors may include: (i) whether or not the
person is an “interested person” as defined in the 1940 Act, meets the
independence and experience requirements of the NYSE applicable to closed-end funds
and is otherwise qualified under applicable laws and regulations to serve as a member
of the Board; (ii) whether or not the person has any relationships that might impair
his or her independence, such as any business, financial or family relationships
with Fund management, the investment advisor and/or sub-advisors of the Fund, Fund
service providers or their affiliates; (iii) whether or not the person is willing
to serve, and willing and able to commit the time necessary for the performance
of the duties of a Board member; (iv) the person’s judgment, skill, diversity
and experience with investment companies and other organizations of comparable purpose,
complexity and size and subject to similar legal restrictions and oversight; (v)
the interplay of the candidate’s experience with the experience of other Board
members; and (vi) the extent to which the candidate would be a desirable addition
to the Board and any committees thereof.
The Nominating and Corporate Governance
Committee will consider nominees recommended by shareholders if a vacancy occurs.
In order to recommend a nominee, a shareholder should send a letter to the chairperson
of the Nominating and Corporate Governance Committee, Mr. Richard Burt, care of
the Secretary of the Fund at UBS Global Asset Management (Americas) Inc., UBS Tower,
One North Wacker Drive, Chicago, IL 60606 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 résumé or curriculum
vitae, and must be accompanied by a written consent of the individual to stand
for election if nominated by the Board and to serve if elected by shareholders.
The Board does not have a standing compensation committee. Shareholders can send
other communications to the Board care of its chairman at the following address:
Mr. Richard Q. Armstrong—UBS Funds, c/o Willkie Farr & Gallagher LLP,
787 Seventh Avenue, New York, NY 10019.
Each Independent Director receives,
in the aggregate from the UBS Global AM funds of which he or she is a director,
an annual retainer of $100,000 and a $15,000 fee for each regular joint board meeting
of the boards of those funds (and each in person special joint board meeting of
the boards of those funds) actually attended. Independent Directors who participate
in previously scheduled in-person joint meetings of the boards of the UBS Global
AM funds by telephone to accommodate other business obligations are paid $2,000
for such meetings. Independent Directors who participate in previously scheduled
in-person joint meetings of the boards of the UBS Global AM funds by telephone because
of illness or other unavoidable circumstances are paid the full meeting fee. Each
Independent Director receives from the
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relevant fund $2,000 for each special in-person
meeting (not held as a joint meeting) of the board of that fund actually attended
where a fund’s board must meet separately from the regularly scheduled joint
board meetings. Independent Directors who participate in scheduled telephonic meetings
of the board(s) of one or more funds are paid $1,000 for each such meeting actually
attended.
The chairman of the boards receives annually an additional $50,000;
the chairperson of the Audit Committee receives annually an additional $35,000;
and the chairperson of the Nominating and Corporate Governance Committee receives
annually an additional $25,000; provided that, if a board member simultaneously
holds more than one such position, he or she is paid only the higher of the fees
otherwise payable for these positions. Independent Directors who are also members
of the Audit Committee and/or Nominating and Corporate Governance Committee are
paid $2,000 for each such meeting actually attended, provided that such meeting
is not held in conjunction with a regularly scheduled board meeting. The foregoing
fees are allocated among all such funds (or each relevant fund in the case of a
special meeting) as follows: (i) one-half of the expense is allocatedpro rata
based on the funds’ relative net assets at the end of the calendar quarter
preceding the date of payment and (ii) one-half of the expense is allocated according
to the number of such funds. No officer, director or employee of UBS Global AM or
one of its affiliates presently receives any compensation from the funds for acting
as a board member or officer. All board members are reimbursed for expenses incurred
in attending meetings. Professor Feldberg, an interested person of the Fund, but
not by reason of affiliation with UBS Global AM, is compensated by UBS Global AM
with respect to a fund unless the management, investment advisory and/or administration
contract between that fund and UBS Global AM provides that the fund may bear a portion
of the compensation to a director who is not an interested person of the fund by
reason of affiliation with UBS Global AM or any of UBS Global AM’s affiliates.
Each director who has attained the age of seventy-five (75) years will be
subject to retirement on the last day of the month in which he or she attains such
age, unless the Board, including a majority of its Independent Directors, determines to grant a waiver of the
retirement policy with respect to a specified individual for a set period of time. The retirement policy
has been waived with respect to Mr. Armstrong, the Chairman of the Board, until 2011. The table below includes certain information relating to the compensation of
the Fund’s directors. Professor Feldberg, an “interested person”
of the Fund, is compensated by UBS Global AM with respect to those funds for which
UBS Global AM serves as advisor, sub-advisor or manager, except as discussed above.
Compensation table†
| Total | ||||||
| Aggregate | compensation | |||||
| compensation | from the Fund | |||||
| from the | and the Fund | |||||
| Name of person, position | Fund* | complex** | ||||
| Richard Q. Armstrong, director | $9,265 | $251,400 | ||||
| Alan S. Bernikow, director | 8,054 | 235,400 | ||||
| Richard R. Burt, director | 6,967 | 225,400 | ||||
| Meyer Feldberg, director†† | 0 | 190,750 | ||||
| Bernard H. Garil, director | 8,616 | 203,400 | ||||
| Heather R. Higgins, director | 8,616 | 203,400 | ||||
| † | Except as discussed above, only Independent Directors were compensated by the funds for which UBS Global AM serves as investment advisor, sub-advisor or manager. | |
| †† | Professor Feldberg is an “interested person” of the Fund by virtue of his position as senior advisor with Morgan Stanley. The compensation amounts listed in the compensation table for Professor Feldberg represent only (1) those amounts paid by other funds within the Fund Complex for which UBS Global AM does not serve as investment advisor, sub-advisor or manager, and (2) funds within the Fund Complex that have management, investment advisory and/or administration contracts | |
- 29 -
| providing that the fund may bear a portion of his compensation, as discussed above. Professor Feldberg is compensated by UBS Global AM with respect to his service on the Fund’s board. | ||
| * | Represents fees paid to each director during the fiscal year ended March 31, 2009. | |
| ** | Represents fees paid during the calendar year ended December 31, 2008 to each board member by: (a) 17 investment companies in the case of Messrs. Armstrong, Bernikow, Burt and Garil and Ms. Higgins; and (b) 30 investment companies in the case of Professor Feldberg for which UBS Global AM or one of its affiliates served as investment advisor, sub-advisor or manager. No fund within the UBS fund complex has a bonus, pension, profit sharing or retirement plan. |
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Information concerning independent registered public accounting firm
The Fund’s financial statements for
the fiscal year ended March 31, 2009, were audited by Ernst & Young LLP (“Ernst
& Young”), independent registered public accounting firm. In addition,
Ernst & Young prepares the Fund’s federal and state annual income tax
returns and provides certain non-audit services. The Audit Committee has considered
whether the provision of those non-audit services is compatible with maintaining
Ernst & Young’s independence. The Audit Committee of the Fund has selected
Ernst & Young as the Fund’s independent registered public accounting firm,
and such selection also has been approved by the Fund’s board for the fiscal
year ending March 31, 2010. Ernst & Young has been the Fund’s independent
registered public accounting firm since its inception in June 1993. Ernst &
Young has informed the Fund that it has no material direct or indirect financial
interest in the Fund.
Representatives of Ernst & Young are not expected
to be present at the meeting but have been given the opportunity to make a statement
if they so desire and will be available should any matter arise requiring their
response.
Audit fees
The aggregate audit fees billed by Ernst
& Young for professional services rendered to the Fund for the fiscal years
ended March 31, 2009 and March 31, 2008 were approximately $42,000 and $40,000,
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.
Audit-related fees
The aggregate audit-related fees billed by Ernst & Young for services
rendered to the Fund that are reasonably related to the performance of the audits
of the financial statements, but not reported as audit fees, were approximately $8,523 and $8,667, respectively, in each of the fiscal years ended March 31, 2009
and March 31, 2008.
Fees included in the audit-related fees category are
those associated with (1) the reading and providing of comments on the 2008 and
2007 semiannual financial statements, (2) review of the consolidated 2007 and 2006
reports on the profitability of the UBS funds to UBS Global Asset Management (Americas)
Inc. and its affiliates to assist the board members in their annual advisory/administration
contract reviews and (3) auction preferred shares testing for the Fund’s fiscal
years ended 2009 and 2008.
With respect to Rule 2-01(c)(7)(i)(C) of Regulation
S-X, there were no audit-related fees that were approved by the Audit Committee
pursuant to the de minimis exception for the fiscal years ended March 31,
2009 and March 31, 2008 on behalf of (i) the Fund’s service providers that
relate directly to the operations and financial reporting of the Fund, or (ii) the
Fund itself. 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.
Tax fees
The aggregate tax fees billed by Ernst &
Young for services rendered to the Fund for each of the fiscal years ended March
31, 2009 and March 31, 2008 were approximately $10,135 and $13,000, 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.
With respect to Rule
2-01(c)(7)(i)(C) of Regulation S-X, there were no tax fees that were approved by
the Audit Committee pursuant to the de minimis exception for the fiscal years
ended March 31, 2009 and
- 31 -
March 31, 2008 on behalf of (i) the Fund’s service providers that relate directly to the operations and financial reporting
of the Fund, or (ii) the Fund itself. 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.
All other fees
For the fiscal years
ended March 31, 2009 and March 31, 2008, there were no fees billed by Ernst &
Young for other services provided to the Fund. 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
Fund.
There were no fees billed by Ernst & Young for the most recent
fiscal year for professional services rendered for financial information systems
design and implementation services provided to the Fund, UBS Global AM and entities
that control, are controlled by or are under common control with UBS Global AM that
provide services to the Fund.
With respect to Rule 2-01(c)(7)(i)(C) of Regulation
S-X, there were no fees within this category that were required to be approved by
the Audit Committee pursuant to the de minimis exception for the fiscal years
ended March 31, 2009 and March 31, 2008 on behalf of (i) the Fund’s service
providers that relate directly to the operations and financial reporting of the
Fund, or (ii) the Fund itself. 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.
The Audit Committee Charter contains the
Audit Committee’s pre-approval policies and procedures. Reproduced below is
an excerpt from the Audit Committee Charter regarding pre-approval policies and
procedures:
| The Audit Committee shall: | ||||
| 2. Pre-approve (a) all audit and permissible non-audit services1 to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent | ||||
| 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 advisor 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 and any service providers controlling, controlled by or under common control with UBS Global 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 advisor and (c) any entity controlling, controlled by, or under common control with the investment advisor 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 | |||
- 32 -
| auditors to UBS Global [Asset Management (Americas) Inc. (“UBS Global”)] 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 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 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 subcommittee shall report to the Committee, at its next regularly scheduled meeting after the subcommittee’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 or the Fund’s officers). |
Aggregate non-audit fees
For the fiscal years ended March 31, 2009
and March 31, 2008, the aggregate non-audit fees billed by Ernst & Young of
approximately $230,658 and $146,599, respectively, included non-audit services rendered
on behalf of the Fund of approximately $18,658 and $21,690, respectively, and non-audit
services rendered on behalf of the Fund’s investment advisor (not including
any sub-advisor whose role is primarily portfolio management and is subcontracted
with or overseen by another investment advisor) and any entity controlling, controlled
by, or under common control with the investment advisor that provides ongoing services
to the Fund of approximately $212,000 and $124,909, respectively.
The Audit
Committee was not required to consider whether the provision of non-audit services
that were rendered to the Fund’s investment advisor (not including any sub-advisor
whose role is primarily portfolio management and is subcontracted with or overseen
by another investment advisor), and any entity controlling, controlled by, or under
common control with the investment adviser that provides ongoing services to the
Fund that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X was compatible with maintaining Ernst & Young’s independence.
| 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. | ||
- 33 -
Executive officers
Officers of the Fund are appointed by the directors and serve at the pleasure of the board. None of the Fund’s officers currently receives any compensation from the Fund. The executive officers of the Fund are:
| Term of office† | Principal occupation(s) during past 5 years; | |||||
| Position(s) held | and length of | number of portfolios in Fund complex | ||||
| Name, address, and age | with Fund | time served | for which person serves as officer | |||
| Joseph Allessie*; 43 | Vice President and Assistant Secretary | Since 2005 | Mr. Allessie is an executive director (since 2007 and deputy general counsel (since 2005) at UBS Global Asset Management (US) Inc. and UBS Global Asset Management (Americas) Inc. (collectively “UBS Global AM—Americas region”). 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 21 investment companies (consisting of 104 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. | |||
| Thomas Disbrow*; 43 | Vice President and Treasurer | Since 2000 (Vice President); since 2004 (Treasurer) | Mr. Disbrow is an executive director (since 2007) and head of the US mutual fund treasury administration department (since September 2006) of UBS Global AM—Americas region. He has been with UBS Global AM—Americas region since 1999. Mr. Disbrow is a vice president and treasurer and/or principal accounting officer of 21 investment companies (consisting of 104 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. | |||
| Michael J. Flook*; 44 | Vice President and Assistant Treasurer | Since 2006 | Mr. Flook is an associate director and a senior manager of the US mutual fund treasury administration department of UBS Global AM—Americas region (since 2006). Prior to joining UBS Global AM—Americas region, he was a senior manager with The Reserve (asset management firm) from May 2005 to May 2006. Prior to that he was a senior manager with PFPC Worldwide since October 2000. Mr. Flook is a vice president and assistant treasurer of 21 investment companies (consisting of 104 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. |
- 34 -
| Term of office† | Principal occupation(s) during past 5 years; | |||||
| Position(s) held | and length of | number of portfolios in Fund complex | ||||
| Name, address, and age | with Fund | time served | for which person serves as officer | |||
| Elbridge T. Gerry III*; 52 | Vice President | Since 1996 | Mr. Gerry is a managing director—municipal fixed income of UBS Global AM—Americas region (since 2001). Mr. Gerry is a vice president of 6 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. | |||
| Mark F. Kemper**; 51 | Vice President and Secretary | Since 2004 | Mr. Kemper is general counsel of UBS Global AM—Americas region (since 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 21 investment companies (consisting of 104 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. | |||
| Joanne M. Kilkeary*; 41 | Vice President and Assistant Treasurer | Since 2004 | Ms. Kilkeary is a director (since 2008) prior to which she was an associate director (since 2000) and a senior manager (since 2004) of the US mutual fund treasury administration department of UBS Global AM—Americas region. Ms. Kilkeary is a vice president and assistant treasurer of 21 investment companies (consisting of 104 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. | |||
| Tammie Lee*; 38 | Vice President and Assistant Secretary | Since 2005 | Ms. Lee is a director and associate general counsel of UBS Global AM—Americas region (since 2005). Prior to joining UBS Global AM—Americas region, she was vice president and counsel at Deutsche Asset Management/Scudder Investments from 2003 to 2005. Prior to that she was assistant vice president and counsel at Deutsche Asset Management/Scudder Investments from 2000 to 2003. Ms. Lee is a vice president and assistant secretary of 21 investment companies (consisting of 104 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. |
- 35 -
| Term of office† | Principal occupation(s) during past 5 years; | |||||
| Position(s) held | and length of | number of portfolios in Fund complex | ||||
| Name, address, and age | with Fund | time served | for which person serves as officer | |||
| Steven J. LeMire*; 39 | Vice President and Assistant Treasurer | Since 2007 | Mr. LeMire is a director and senior manager of the US mutual fund treasury administration department of UBS Global AM—Americas region (since 2007). Prior to joining UBS Global AM—Americas region, he was an independent consultant with Third River Capital, LLC (formerly Two Rivers Capital, LLC) (from 2005 to 2007). Prior to that, he was vice president of operations and fund administration with Oberweis Asset Management, Inc. (from 1997 to 2005). Mr. LeMire is a vice president and assistant treasurer of 21 investment companies (consisting of 104 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. | |||
| Joseph McGill*; 47 | Vice President and Chief Compliance Officer | Since 2004 | Mr. McGill is a managing director (since 2006) and chief compliance officer (since 2003) of UBS Global AM—Americas 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 21 investment companies (consisting of 104 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. | |||
| Kevin McIntyre*; 42 | Vice President | Since 2005 | Mr. McIntyre is a director (since 2003) and portfolio manager (since 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 2 investment companies (consisting of 2 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. |
- 36 -
| Term of office† | Principal occupation(s) during past 5 years; | |||||
| Position(s) held | and length of | number of portfolios in Fund complex | ||||
| Name, address, and age | with Fund | time served | for which person serves as officer | |||
| Nancy D. Osborn*; 43 | Vice President and Assistant Treasurer | Since 2007 | Mrs. Osborn is an associate director and a senior manager of the US mutual fund treasury administration department of UBS Global AM—Americas region (since 2006). Prior to joining UBS Global AM—Americas region, she was an Assistant Vice President with Brown Brothers Harriman since April 1996. Mrs. Osborn is a vice president and assistant treasurer of 21 investment companies (consisting of 104 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. | |||
| Eric Sanders*; 43 | Vice President and Assistant Secretary | Since 2005 | Mr. Sanders is a director and associate general counsel of UBS Global AM—Americas region (since 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 21 investment companies (consisting of 104 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. | |||
| Andrew Shoup*; 52 | Vice President and Chief Operating Officer | Since 2006 | Mr. Shoup is a managing director and global head of the fund treasury administration department of UBS Global AM—Americas region (since July 2006). Mr. Shoup is also a director of UBS (IRL) Fund p.l.c. Prior to joining UBS Global AM—Americas region, he was chief administrative officer for the Legg Mason Partners Funds (formerly Smith Barney, Salomon Brothers, and CitiFunds mutual funds) from November 2003 to July 2006. Prior to that, he held various positions with Citigroup Asset Management and related companies with their domestic and offshore mutual funds since 1993. Additionally, he has worked for another mutual fund complex as well as spending eleven years in public accounting. Mr. Shoup is a vice president and chief operating officer of 21 investment companies (consisting of 104 portfolios) for which UBS Global AM—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. |
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| Term of office† | Principal occupation(s) during past 5 years; | |||||
| Position(s) held | and length of | number of portfolios in Fund complex | ||||
| Name, address, and age | with Fund | time served | for which person serves as officer | |||
| Kai R. Sotorp**; 50 | President | Since 2006 | Mr. Sotorp is the Head—Americas for UBS Global Asset Management (since 2004); a member of the UBS Group Managing Board (since 2003), and a member of the UBS Global Asset Management Executive Committee (since 2001). Mr. Sotorp is a board director and president of UBS Global AM Holdings (USA) Inc. (since 2004). Prior to his current role, Mr. Sotorp was head of UBS Global Asset Management—Asia Pacific (2002–2004), covering Australia, Japan, Hong Kong, Singapore and Taiwan; head of UBS Global Asset Management (Japan) Ltd. (2001–2004); representative director and president of UBS Global Asset Management (Japan) Ltd. (2000–2004); and member of the board of Mitsubishi Corp.—UBS Realty Inc. (2000–2004). Mr. Sotorp is president of 21 investment companies (consisting of 104 portfolios) for which UBS Global Asset Management—Americas region or one of its affiliates serves as investment advisor, sub-advisor or manager. | |||
| Keith A. Weller*; 47 | Vice President and Assistant Secretary | Since 1995 | Mr. Weller is an executive director and senior associate general counsel of UBS Global AM—Americas region (since 2005) and has been an attorney with affiliated entities since 1995. Mr. Weller is a vice president and assistant secretary of 21 investment companies (consisting of 104 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. | |
| † | Officers of the Fund are appointed by the directors and serve at the pleasure of the board. | |
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Other information
Beneficial ownership
of shares
The following is based upon a review of public filings. As of April 30, 2009, management knew of the following persons who owned beneficially 5% or more of the common stock or auction preferred stock of the Fund:
| Amount of | ||||||
| Title of class | Name and address of beneficial owner | beneficial ownership | Percent of class* | |||
| Common Stock | Bulldog Investors General Partnership and Phillip Goldstein | 2,078,913** | 10.08% | |||
| 60 Heritage Drive, Pleasantville, NY 10570 | ||||||
| Common Stock | Karpus Management Inc., d/b/a Karpus | 2,010,384*** | 9.75% | |||
| Investment Management | ||||||
| 183 Sully’s Trail, Pittsford, NY 14534 | ||||||
| Auction Preferred Stock | UBS AG, for benefit of and on behalf of | 1,173**** | 37.84% | |||
| UBS Securities LLC and UBS Financial | ||||||
| Services Inc. | ||||||
| Bahnhofstrasse 45, PO Box CH-8021 | ||||||
| Zurich, Switzerland | ||||||
| Auction Preferred Stock | Morgan Stanley & Co. Incorporated | 183***** | 5.90% | |||
| 1585 Broadway, New York, NY 10036 |
| * | Percent of class is based on the number of shares outstanding as of April 30, 2009. | |
| ** | Based on a Schedule 13D/A filed with the SEC with respect to the Fund on April 29, 2009 by Bulldog Investors General Partnership and Phillip Goldstein. | |
| *** | Based on a Schedule 13D/A filed with the SEC with respect to the Fund on January 30, 2009 by Karpus Investment Management. | |
| **** | Based on a Schedule 13G filed with the SEC with respect to the Fund on February 10, 2009 by UBS AG, for benefit of and on behalf of UBS Securities LLC and UBS Financial Services Inc. | |
| ***** | Based on a Schedule 13G filed with the SEC with respect to the Fund on February 17, 2009 by Morgan Stanley & Co. Incorporated. | |
Section 16(a) beneficial ownership reporting compliance
The Fund is not aware of any outstanding
report required to be filed pursuant to Section 16(a) of the Securities Exchange
Act of 1934 by any board member or officer.
Shareholder proposals
Any shareholder who wishes to submit proposals to be considered at the Fund’s 2010 annual meeting of shareholders should send such proposals to the Secretary of the Fund at UBS Global Asset Management, UBS Tower, One North Wacker Drive, Chicago IL, 60606. In order to be considered at that meeting, shareholder proposals must be received by the Fund no later than January [29], 2010. Shareholder proposals that are submitted in a timely manner will not necessarily be included in the
- 39 -
Fund’s proxy materials. Inclusion of
such proposals is subject to limitations under the federal securities laws and informational
requirements of the Fund’s Bylaws, as in effect from time to time.
Currency of information
Shareholders should note that information and data provided in this Proxy Statement is current only as of the dates indicated. In order to comply with certain regulatory requirements relating to the timing for the preparation of opposition statements to shareholder proposals, the performance and discount information provided in the opposition statement to Proposal 6 is as of March 31, 2009. Shareholders should note that the Fund’s performance and discount may vary from month to month and thus may differ from the figures shown. Past performance does not guarantee future results. In addition, information regarding the assets under management of UBS Global AM and the UBS Global Asset Management division of UBS AG provided in the opposition statement to Proposal 6 is as of December 31, 2008. As of March 31, 2009, UBS Global AM had approximately $142 billion in assets under management and the UBS Global Asset Management division had approximately $507 billion in assets under management.
Solicitation of proxies
Your vote is being solicited by the directors
of the Fund. The cost of soliciting these proxies will be borne by the Fund. The
Fund reimburses brokerage firms and others for their expenses in forwarding proxy
material to the beneficial owners and soliciting them to execute proxies.
In addition, the Fund has made arrangements with a professional proxy solicitation
firm, Georgeson Inc., to assist with solicitation of proxies. The Fund anticipates
that the cost of retaining Georgeson Inc. will be approximately $10,000 to $50,000 plus
expenses. The Fund has agreed to indemnify Georgeson Inc. against certain liabilities,
including liabilities arising under the federal securities laws. Georgeson Inc.
has informed the Fund that it intends to employ approximately 40 persons to solicit
proxies.
The Fund expects that the solicitation will be primarily by mail,
but also may include telephone, telecopy, electronic, oral or other means of communication.
If the Fund does not receive your proxy by a certain time, you may receive a telephone
call from a proxy soliciting agent asking you to vote.
It is currently estimated
that the total amount to be spent on the solicitation (in excess of the amount normally
spent for an annual meeting where only the reelection of the existing board members
is proposed, and excluding salaries and wages of Fund officers and employees of
UBS Global AM) will be approximately $550,000. To date, approximately $0 has been
spent on the solicitation. These amounts exclude costs normally expended for the
election of directors in the absence of a contest. The directors and officers of
the Fund, or regular employees and agents of UBS Global AM and UBS Financial Services
Inc., may be involved in the solicitation of proxies. The Fund does not reimburse
such persons for the solicitation of proxies. The Fund intends to pay all costs
associated with the solicitation and the meeting.
Important notice regarding the availability of proxy materials for the annual meeting of shareholders to be held on August 12, 2009
This proxy statement, along with the Fund’s annual report for the fiscal year ended March 31, 2009, are available free of charge on the Fund’s website at [http://www.ubs.com/1/e/globalam/Americas/globalamus/globalamusii/ii_closed_end_funds.html.]
Other business
Management knows of no business to be presented
to the meeting other than the matters set forth in this proxy statement, but should
any other matter requiring a vote of shareholders arise, the proxies will vote thereon
according to their discretion.
By order of the board of directors,
Mark
F. Kemper
Vice President and Secretary
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May [29,] 2009
| It is important that you execute and return your proxy promptly. |
- 41 -
Exhibit A
Audit Committee Charter, amended and restated
as of May 12, 2004
(with revisions through July 2008)
Establishment and purpose
This document serves as the Charter for the Audit Committee (the “Committee”) of the Board of each fund (the “Fund”) advised by UBS Global Asset
Management (Americas) Inc. (“UBS Global”) listed on Appendix A hereto
(each such Charter being a separate Charter). The primary purposes of the Committee
are to assist Board oversight of (1) the integrity of the Fund’s financial
statements, (2) the Fund’s compliance with legal and regulatory requirements,
(3) the independent auditors’ qualifications and independence and (4) the performance
of the Fund’s independent auditors.
In performing its Board oversight
assistance function, the Committee will, among other things (a) oversee the scope
of the Fund’s audit, the quality and objectivity of the Fund’s financial
statements, the Fund’s accounting and financial reporting policies and practices
and its internal controls and, as appropriate, the internal controls of certain
service providers; (b) approve, and recommend to the Board, for ratification, the
selection, appointment, retention or termination of the Fund’s independent
auditors, as well as determining the compensation thereof; and (c) pre-approve all
audit and non-audit services provided to the Fund and certain other persons by such
independent auditors.
Duties and responsibilities
Audit oversight. The Fund’s independent auditors are
accountable to the Committee.
| The Committee shall: | ||
| 1. | Approve, and recommend to the Board for the Board’s ratification, the selection, appointment, retention or termination of the Fund’s independent auditors, or of any other public accounting firm engaged for the purpose of performing other audit, review or attest services for the Fund. | |
| 2. | Pre-approve (a) all audit and permissible non-audit services2 to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent auditors to UBS | |
| 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 and any service providers controlling, controlled by or under common control with UBS Global 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 | |
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| Global 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 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 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 or the Fund’s officers). | ||
| 3. | Discuss with the independent auditors any disclosed relationships or services that may diminish the objectivity and independence of the independent auditors; receive periodic reports from the independent auditors regarding the independent auditors’ independence (including receiving the independent auditors’ specific representations as to independence consistent with current statements of the Independence Standards Board); and discuss such reports with the independent auditors, and, if so determined by the Committee, recommend that the Board take appropriate action to ensure the independence of the independent auditors. | |
| 4. | Review, in consultation with the independent auditors, the scope of the Fund’s proposed audit each year, including the audit procedures to be utilized, and certain other matters in connection with the Fund’s financial statements. | |
| 5. | Inquire of UBS Global and the independent auditors as to the Fund’s qualification under Subchapter M of the Internal Revenue Code and amounts distributed and reported to shareholders for Federal tax purposes. | |
| 6. | [Closed-end Funds only] Review and discuss the Fund’s audited annual financial statements and unaudited semiannual reports with UBS Global and, in the case of the audited financials, the independent auditors, including the Fund’s disclosure of management’s discussion of Fund performance. | |
| 7. | Review with the independent auditors any problems or difficulties the auditors may have encountered during the conduct of the audit, relating to the conduct of the audit, including any matters required to be discussed pursuant to Statement of Auditing Standards No. 61, or any subsequent Statement, and management’s response. | |
| 8. | Ensure that the independent auditors submit on a periodic basis to the Committee a formal written statement delineating all relationships of the auditors consistent with Independence Standards Board Standard No. 1, or any subsequent Statement. | |
| 9. | Review, in consultation, as appropriate, with the independent auditors and Fund service providers, matters relating to internal controls and disclosure controls and procedures at the Fund and at the Fund’s service providers. | |
| 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. | ||
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| 10. | Request, receive and/or review from the independent auditors such other materials as deemed necessary or advisable by the Committee in the exercise of its duties under this charter; such materials may include, without limitation, any other material written communications bearing on the Fund’s financial statements, or internal or disclosure controls, between the independent auditors and the Fund, UBS Global, the Fund’s sub-adviser(s), if any, or other Fund service providers, such as any management letter or schedule of unadjusted differences, and any comment or “deficiency” letter received from a regulatory or self-regulatory organization addressed to the Fund, UBS Global or the Fund’s sub-adviser(s), if any, that relates to services rendered to the Fund. | |
| 11. | Establish procedures for the receipt, retention and treatment of complaints that the Fund may receive regarding Fund accounting, internal accounting controls or auditing matters, including procedures (set forth on Appendix C hereto) for the confidential, anonymous submission by Fund officers or employees and the Fund’s investment adviser (including sub-advisers, if any), administrator(s), principal underwriter or any other provider of accounting-related services for the Fund of concerns regarding questionable accounting or auditing matters related to the Fund. | |
| 12. | Request that the independent auditors report to the Committee on any unusual items or matters discovered during the course of any semi-annual or other reviews. | |
| 13. | [Closed-end Funds only] Consider and, if appropriate, recommend the publication of the Fund’s annual audited financial statements in the Fund’s annual report in advance of the printing and publication of the annual report, based on its review and discussions of such annual report with the independent auditors, the Fund’s officers and UBS Global; and prepare the audit committee report required to be included in the Fund’s proxy statement for its annual meeting of shareholders. | |
| 14. | [Closed-end Funds only] At least annually, obtain and review a report by the Fund’s independent auditors describing (i) the independent auditors’ internal quality-control procedures; (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the independent auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the independent auditors, and any steps taken to deal with such issues; and (iii) (to assess the independent auditors’ independence) all relationships between the independent auditor and the Fund. | |
| 15. | [Closed-end Funds only] Discuss in general the Fund’s periodic earnings releases, as well as any financial information and earnings guidance provided to analysts and rating agencies. | |
| 16. | [Closed-end Funds only] Discuss policies with respect to risk assessment and risk management. | |
| 17. | [Closed-end Funds only] Review hiring policies of UBS Global and the Fund, if any, for employees and former employees of the Fund’s independent auditors. | |
| 18. | [Closed-end Funds only] Prepare an annual performance evaluation of the Committee for the Board’s review. | |
| 19. | Review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval. |
In performing its duties, the Committee shall be provided by UBS Global, the Fund’s sub-advisor(s), if any, or the Fund, as applicable, with such information, data and services as the Committee shall request to discharge its duties and responsibilities, shall consult as it deems appropriate with the members of the Board, officers and employees of the Fund, UBS Global, the Fund’s sub-advisor(s), if any, the Fund’s counsel and the Fund’s other service providers and, as it determines necessary to carry out its duties and
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at the Fund’s expense, may engage outside
advisors and consultants. In carrying out its functions, the Committee shall meet
separately, periodically, with management and with the Fund’s independent auditors.
The Fund shall provide appropriate funding for the Committee to carry out its duties
and responsibilities.
Composition
The Committee shall have
a minimum of three members and shall be composed of a number of Board members, each
of whom has been determined not to be an “interested person,” as that
term is defined in Section 2(a)(1 9) of the Investment Company Act of 1940, as amended
(“1940 Act”), of the Fund (the “Independent Board Members”),
as the Board shall determine from time to time. Each member of the Committee must
also meet the independence and experience requirements as set forth in Sections
303A.07(a) and 303.01(b)(2)(a) of the New York Stock Exchange’s Listed Company
Manual, in each case as applicable to closed-end Funds. The Committee shall elect
a chairperson, who shall preside over Committee meetings (the “Chairperson”). The Chairperson shall serve for a term of three years, which term may be
renewed from time to time.2
In addition, the Board shall use its
best efforts to ensure that at least one member of the Committee is an “audit
committee financial expert,” as determined under the rules of the Securities
and Exchange Commission. Appendix B sets forth the audit committee financial expert
requirements as of the date of this amended and restated Charter. In the event that
the Committee does not have at least one such audit committee financial expert,
the nominating committee of the Board shall endeavor to identify and recommend to
the Board a candidate that meets such requirements or, in the event the Board does
not, at such time, have a nominating committee, the Board shall designate the Independent
Board Members as a committee to identify and recommend to the Board a candidate
that meets such requirements.
For those Funds listed on the NYSE, no member
of the Committee may serve on the audit committees of more than three public companies,
including all Funds managed by UBS Global (deemed for these purposes to be a single
public company), unless the Board determines that such simultaneous service would
not impair the ability of such member to serve on the Committee effectively.
Meetings
The Committee shall meet on a regular basis, but not less
frequently than twice a year. Special meetings may also be held upon reasonable
notice to the members of the Committee. An agenda shall be established for each
meeting. Additional meetings shall be called as circumstances require. The Committee
may request any officer or employee of the Fund, the Fund’s counsel, UBS Global,
the Fund’s sub-adviser(s), if any, the Fund’s independent auditors or
other interested persons to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee. The Committee will meet with the Fund’s independent auditors at least once a year outside the presence of the Fund’s officers and other parties. The Committee may, in its discretion, also meet
outside the presence of the Fund’s officers and other parties at other times.
Meetings of the Committee may be held in person, by telephone or by other appropriate
means.
One-third of the Committee’s members shall constitute a quorum.
At any meeting of the Committee, the decision of a majority of the members present
and voting shall be determinative as to any matter submitted to a vote.
Reporting
The Chairperson shall report to the Board on the result of
its deliberations and make such recommendations as deemed appropriate.
| 2 | In the case of a newly-organized UBS fund, the Chairperson’s term will be coterminous with those of the other UBS funds listed on Schedule A, even if such term is shorter than three years. | |
A-4
Limits on role of committee
While the Committee has the duties and responsibilities set forth in this Charter,
the Committee is not responsible for planning or conducting the Fund’s audit
or for determining whether the Fund’s financial statements are complete and
accurate and are in accordance with generally accepted accounting principles. In
fulfilling their responsibilities hereunder, it is recognized that the members of
the Committee are not full-time employees of the Fund, it is not the duty or the
responsibility of the Committee or its members to conduct “field work”
or other types of auditing or accounting reviews or procedures or to set auditor
independence standards, and each member of the Committee shall be entitled to rely
on (a) the integrity of those persons within and outside the Fund from which it
receives information; (b) the accuracy of the financial and other information provided
to the Committee absent actual knowledge to the contrary (which shall be promptly
reported to the Board); and (c) statements made by the officers and employees of
the Fund, UBS Global or other third parties as to any information technology, internal
audit and other non-audit services provided by the independent auditors to the Fund.
The review of the Fund’s financial statements by the Committee is not of the
same quality as the audit performed by the independent auditors.
In carrying
out its responsibilities, the Committee’s policies and procedures shall be
adapted, as appropriate, in order to best react to a changing environment.
Amendments
This Charter may be amended by a vote of a majority of the
Board members.
A-5
Appendix A
UBS Managed Municipal Trust
UBS Series
Trust
UBS Investment Trust
UBS Index Trust
UBS Municipal Money Market
Series
UBS Money Series
UBS PACE Select Advisors Trust
UBS Cashfund
Inc.
UBS RMA Money Fund Inc.
UBS RMA Tax-Free Fund Inc.
UBS Master Series,
Inc.
Master Trust
*Strategic Global Income Fund, Inc.
*Global High Income
Fund Inc.
*Investment Grade Municipal Income Fund Inc.
*Insured Municipal
Income Fund Inc.
*Managed High Yield Plus Fund Inc.
| * | Closed-end Funds. The duties and responsibilities of any provision applicable exclusively to closed-end funds apply to these funds only. | |
A-6
Appendix B
Audit committee financial expert requirements
An “audit committee financial expert” is a person who has the following attributes:
an understanding of generally accepted accounting principles and financial statements;
the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves;
experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements, or experience actively supervising one or more persons engaged in such activities;
an understanding of internal controls and procedures for financial reporting; and an understanding of audit committee functions.
A person must have acquired such attributes through one or more of the following:
education and experience as a principal financial officer, principal accounting officer, controller, public accountant or auditor or experience in one or more positions that involve the performance of similar functions;
experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar functions;
experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements; or
other relevant experience.
A-7
Appendix C
Policies of the audit committee regarding
concerns or complaints relating to
accounting, internal accounting controls or auditing
matters or other matters
relating to the operations of the Fund
Introduction
The following policies are adopted by the
Board of each fund (“Fund”) advised by UBS Global Asset Management (Americas)
Inc. (“UBS Global AM”) listed on Appendix A to the Fund’s Audit Committee
Charter (“Charter”).
These policies shall constitute an amendment to, and a part of, the Charter and shall be designated as Appendix C to the Charter. These policies constitute the procedures to be established pursuant to Item 11 of “Duties and Responsibilities—Audit Oversight” in the Charter; however, the Board has decided to extend the benefit of these policies to all Funds, not just those exchange-listed Funds that are required to establish such procedures pursuant to Section 301 of the Sarbanes-Oxley Act and Rule 303A of the New York Stock Exchange Inc. Listed Company Manual.
These policies establish (1) procedures for the receipt, retention and treatment of complaints received by the Fund (including Fund officers) regarding accounting, internal accounting controls or auditing matters or other matters relating to the operations of the Fund, (2) procedures for the confidential, anonymous submission of concerns regarding questionable accounting or auditing matters by employees of the investment adviser (and sub-advisor, if applicable), administrator (and sub-administrator, if applicable), principal underwriter (if any), or any other provider of accounting related services for the Fund (each a “Service Provider”) and (3) protections for such persons bringing complaints or concerns to the attention of the Board’s Audit Committee (the “Committee”).
Reporting
It is expected that all board members and
officers, as well as employees of each Service Provider, will report promptly any
concerns or complaints regarding accounting, internal accounting controls or auditing
matters or other matters relating to the operations of the Fund. Employees of Service
Providers (including Fund officers) should first consider exhausting any internal
reporting mechanisms at their firm before directly contacting the Chairperson of
the Committee (or in the event of a potential conflict involving such person, any
other member of the Committee). If such a person does not receive a satisfactory
response within a reasonable period of time, or if he or she believes that utilizing
internal reporting mechanisms would be futile or otherwise undesirable, he or she
should (1) in the case of Service Providers under the supervision of UBS Global
AM (e.g., State Street Bank and Trust or PNC Global Investment Servicing, Inc.),
contact UBS Global AM via the “ethics hotline” and/or mailbox referenced
below (unless such person believes that using such “ethics hotline” and/or
mailbox would be futile or otherwise undesirable, in which case he or she should
report concerns as directed in the remainder of this sentence); or (2) in the case
of all other persons, contact the Chairperson of the Committee directly (or in the
event of a potential conflict involving such person, any other member of the Committee).
The Committee requests that each Service Provider promptly inform it of complaints or concerns received from its employees pursuant to these or any similar policies it may have if such complaints or concerns are reasonably believed to relate to accounting, internal accounting controls or auditing matters or other matters relating to the operations of the Fund.
The Committee directs UBS Global AM to communicate these policies to its primary contact(s) at each other Service Provider. Each Service Provider, including UBS Global AM, shall be directed to make these methods by which complaints or concerns can be communicated known to its employees who are primarily involved in accounting, internal accounting controls or auditing matters or other matters relating
A-8
to the operations of the Fund that could reasonably be expected to impact the Fund. If any Service Provider refuses such request, UBS Global AM shall notify the Committee of the Service Provider’s reasons for non-cooperation, and the Committee shall recommend to the Board such actions as it believes appropriate.
Non retaliation
The Fund prohibits any form of retaliation
being taken against any board member or officer, and shall request that each Service
Provider not take any form of retaliation against its employees, as a result of
such person lawfully engaging in any of the following “Covered Activities”:
| 1. | reporting concerns or complaints regarding accounting, internal accounting controls or auditing matters or other matters relating to the operations of the Fund; or | |
| 2. | assisting in an internal or external investigation conducted by the Fund or a Service Provider regarding such concerns or complaints; or | |
| 3. | filing, testifying, participating or otherwise assisting in a criminal or regulatory proceeding relating to the Fund or a Service Provider. | |
To the extent possible, the Board shall seek assurances from Service Providers that they shall not discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of his or her employment because such employee has made a report of a concern or complaint or engaged in any other Covered Activities under these policies. In addition, the Board shall seek assurances from Service Providers that they shall not knowingly, with the intent to retaliate, take any action harmful to any employee, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any crime.
Confidentiality
Reasonable efforts will be made to keep
a reporting person’s identity confidential. In certain circumstances, however,
it may be possible that in the course of the investigation, facts must be disclosed
that would require the identity of the reporting person to be disclosed. Accordingly,
in such circumstances, it is not possible to give a blanket guarantee of confidentiality.
However, the Committee shall take all reasonable steps (and ask its Service Providers
to make reasonable efforts) to attempt to safeguard the submission of information
on a confidential basis.
A Fund Person or Service Provider employee may submit information anonymously to the Committee through a letter addressed directly to the Chairman of the Committee (or in the event of a potential conflict involving such person, to any other member of the Committee) at the Chairman’s (or other Committee member’s) address as specified in the Fund’s Annual Report to Shareholders. The Committee recognizes that certain Service Providers have established their own procedures for the confidential, anonymous receipt of concerns or complaints and requests that Service Providers promptly report to the Committee any concerns or complaints relating to the matters discussed herein.
Ethics hotline & mailbox
Where circumstances preclude the use of
conventional channels, UBS Global AM has established an ethics hotline and a physical mailbox to
facilitate the confidential, anonymous submission of concerns regarding potential
legal/regulatory violations and questionable accounting or auditing matters or other
matters relating to the operations of a Fund or other ethical dilemmas. The hotline
is available for leaving a voicemail message 24-hours a day, seven days a week.
In order to protect confidentiality, only the UBS Global AM General Counsel and
Chief Compliance Officer will be authorized to retrieve messages. Please utilize
the hotline and the mailbox only for this stated purpose. The ethics hotline number
is 877-
A-9
882 9373. Written submissions should be addressed to: UBS Global Asset Management (Americas) Inc., Attn: Chief Compliance Officer, 51 West 52nd Street, New York, NY 10019-61 14.
Breach of this policy
Retaliatory conduct which amounts to a breach
of this policy could result in criminal or regulatory sanctions or civil liability
or have an adverse effect on the Fund’s or a Service Provider’s reputation.
As a result, a breach of this policy may constitute gross misconduct and may result
in disciplinary action up to and including dismissal from service as a board member
or officer, or with respect to a Service Provider, the Board’s decision to
terminate any Fund contracts or other relationships with the Service Provider.
Retention and treatment of information
regarding concerns and complaints
The Committee minutes shall reflect the
receipt, retention and treatment of information received pursuant to this policy.
The Committee shall have the power to obtain the resources it deems necessary and
appropriate to investigate any information regarding such concerns or complaints,
including obtaining the assistance of special counsel, auditors or other advisors
or consultants to assist it in carrying out its responsibilities.
(May 2004, with revisions through July 2008)
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Exhibit B
Nominating and corporate governance committee
charter, amended and restated
as of July 16, 2008
Establishment and purpose
This document serves as the Charter for
the Nominating and Corporate Governance Committee (the “Committee”) of
the Board of each fund (the “Fund”) advised by UBS Global Asset Management
(Americas) Inc. listed on Appendix A hereto (each such Charter being a separate
Charter). The primary purposes of the Committee are to (a) identify individuals
qualified to serve as members of the Board of Directors/Trustees (the “Board”) of each Fund; (b) make recommendations to the Board on the composition of
the Board; (c) recommend committee assignments and responsibilities to the Board;
(d) make recommendations to the Board regarding corporate governance matters and
responsibilities; and (e) periodically assess the functioning of the Board and its
committees (including the Committee).
| Composition | ||
| 1. | The Committee shall consist of three or more Board members who are not “interested persons” of the Fund, as that term is defined in Section 2(a)(1 9) of the Investment Company Act of 1940, as amended (“1940 Act”), of the Fund (the “Independent Board Members”). Each member of the Committee must also meet the independence and experience requirements applicable to closed-end funds as they may be adopted and modified from time to time by the New York Stock Exchange (the “NYSE”). Each Committee member shall serve until a successor to such member is duly elected or qualified or until such member’s resignation or removal from the Board or the Committee. | |
| 2. | The Committee shall elect a chairperson (the “Chairperson”) of the Committee, who shall preside over Committee meetings. | |
| 3. | The compensation of the Chairperson and the Committee members shall be as determined by the Board. | |
| Nomination and appointment policy | |||||
| 1. | The Committee believes that it is in the best interests of the Fund and its shareholders to obtain highly-qualified candidates to serve as members of the Board. | ||||
| 2. | In nominating candidates, the Committee believes that no specific qualifications or disqualifications are controlling or paramount, or that specific qualities or skills are necessary for each candidate to possess. The Committee shall take into consideration such factors as it deems appropriate. These factors may include: | ||||
| • | whether or not the person is an “interested person” as defined in the 1940 Act, meets the independence and experience requirements of the NYSE cited above and is otherwise qualified under applicable laws and regulations to serve as a member of the Board; | ||||
| • | whether or not the person has any relationships that might impair his or her independence, such as any business, financial or family relationships with Fund management, the investment advisor and/or sub-advisors of the Fund, Fund service providers or their affiliates; | ||||
| • | whether or not the person is willing to serve, and willing and able to commit the time necessary for the performance of the duties of a Board member; | ||||
B-1
| • | the person’s judgment, skill, diversity and experience with investment companies and other organizations of comparable purpose, complexity and size and subject to similar legal restrictions and oversight, | |||
| • | the interplay of the candidate’s experience with the experience of other Board members; and | |||
| • | the extent to which the candidate would be a desirable addition to the Board and any committees thereof. | |||
| 3. | While the Committee is solely responsible for the selection and recommendation to the Board of Board candidates, the Committee will consider nominees recommended by Fund shareholders if a vacancy occurs among those Board members who are Independent Board Members. Such recommendations shall be directed to the Secretary of the Fund at such address as is set forth in the Fund’s disclosure documents. 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. The Committee may also seek such additional information about the nominee as it considers appropriate, including information relating to such nominee that is required to be disclosed in solicitations or proxies for the election of Board members. | |||
| 4. | The Committee may from time to time establish specific requirements and/or additional factors to be considered for Board candidates as it deems necessary or appropriate. | |||
| Duties and responsibilities | ||
| 1. | The Committee shall identify individuals believed to be qualified to become Board members and recommend to the Board the nominees to either (i) be elected by the Board or (ii) stand for election as Board members at the annual or special meeting of shareholders, as applicable. | |
| 2. | The Committee shall be responsible for reviewing with the Board the requisite skills and criteria for new Board members as well as the composition of the Board as a whole. | |
| 3. | The Committee shall review, as it deems necessary, and make recommendations with regard to the tenure of the Board members, including, as it deems necessary, any term limits and mandatory retirement age. | |
| 4. | The Committee shall review, as it deems necessary, and make recommendations to the Board with regard to the compensation of Board and committee chairpersons. | |
| 5. | The Committee shall have the authority to retain and terminate any search firm to be used to identify Board nominees, subject to the Board’s sole authority to approve the search firm’s fees and other retention terms. | |
| 6. | The Committee shall be responsible for overseeing an annual evaluation of the Board and its committees to determine whether the Board and its committees are functioning effectively. The Committee shall determine the nature of the evaluation, supervise the conduct of the evaluation and prepare a summary of the performance of the Board and its committees, to be discussed with the Board. | |
| 7. | The Committee shall have any other duties or responsibilities expressly delegated to the Committee by the Board from time to time relating to (a) the nomination of the Board or any committee members, (b) corporate governance matters and (c) Board and committee evaluation matters. | |
B-2
| Subcommittees | ||
| 1. | The Committee shall have the authority to delegate all or a portion of its duties and responsibilities to a subcommittee of the Committee. | |
| Meetings | ||
| 1. | The Committee shall meet at such times as it deems necessary or appropriate to carry out its duties. Meetings of the Committee may be held in person, by telephone or by other appropriate means. The Committee may also take action by unanimous written consent. | |
| 2. | One-half of the Committee’s members shall constitute a quorum, if at least two members are present. At any meeting of the Committee, the decision of a majority of the members present and voting shall be determinative as to any matter submitted to a vote. | |
| 3. | The Committee shall, from time to time as it deems appropriate, review and reassess the adequacy of this Charter and recommend any proposed changes to the Board for approval. | |
| 4. | The Committee shall have the resources and authority to make reasonable expenditures, including expenditures to retain any experts and counsel related to the aforementioned duties and tasks that will be reimbursed by the Fund. | |
| 5. | The Committee shall keep written minutes of its meetings, which minutes shall be maintained within the books and records of the Fund, and the Committee shall report to the Board on its meetings. | |
| Reporting | ||
| 1. | The Chairperson shall report to the Board on the result of the Committee’s deliberations and make such recommendations as deemed appropriate. | |
| Amendments | ||
| 1. | This Charter may be amended by a vote of a majority of the Board members. | |
B-3
Schedule A
| UBS Managed Municipal Trust |
| UBS Series Trust |
| UBS Investment Trust |
| UBS Index Trust |
| UBS Municipal Money Market Series |
| UBS Money Series |
| UBS PACE Select Advisors Trust |
| UBS Cashfund Inc. |
| UBS RMA Money Fund Inc. |
| UBS RMA Tax-Free Fund Inc. |
| UBS Master Series, Inc. |
| Master Trust |
| Strategic Global Income Fund, Inc. |
| Global High Income Fund Inc. |
| Investment Grade Municipal Income Fund Inc. Insured Municipal Income Fund Inc. |
| Managed High Yield Plus Fund Inc. |
B-4
Exhibit C
Form of Proposed Contract
Investment advisory and administration contract
Contract made
as of April 1, 2006,[ ], 2009, between INSURED MUNICIPAL INCOME
FUND INC., a Maryland corporation (“Fund”), and UBS GLOBAL ASSET
MANAGEMENT (AMERICAS) INC. (“UBS Global AmericasAM”), a Delaware corporation
registered as an investment adviser under the Investment Advisers Act of 1940, as
amended.
WHEREAS, the
Fund is registered under the Investment Company Act of 1940, as amended (“1940
Act”), as a closed-end, diversified management investment company, and
intends to register has registered shares of its common stock (“Shares”) for sale to the public under the Securities Act of 1933, as amended
(“1933 Act”); and
WHEREAS, the
Fund desires to retain UBS Global AmericasAM as investment adviser and administrator
to furnish certain administrative, investment advisory and portfolio management
services to the Fund and UBS Global AmericasAM is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows:
| 1. | Appointment. The Fund hereby appoints UBS Global |
|
| 2. | Duties as Investment Adviser. | |
| (a) | Subject to the supervision of the Fund’s Board of Directors (“Board”), UBS Global |
|
| (b) | UBS Global |
|
C-1
| amount among all such accounts in a manner believed to be equitable to each account and consistent with UBS Global AM’s fiduciary obligations to the Fund. The Fund recognizes that in some cases this procedure may adversely affect the results obtained for the Fund. | ||
| (c) | UBS Global |
|
| (d) | UBS Global |
|
| (e) | The Fund hereby authorizes UBS Global |
|
| 3. | Duties As Administrator. UBS Global |
|
| (a) | UBS Global |
|
| (b) | UBS Global |
|
| (c) | UBS Global |
|
| (d) | UBS Global |
|
| (e) | UBS Global |
|
C-2
| and investment services normally available to institutional
or other customers of UBS Global |
|||
| (f) | UBS Global AM has adopted compliance policies and procedures reasonably designed to prevent violations of the Investment Advisers Act of 1940, as amended, and the rules thereunder, has provided the Fund with a copy of such compliance policies and procedures (and will provide the Fund with any material amendments thereto) and agrees to assist the Fund in complying with the Fund’s compliance program adopted pursuant to Rule 38a-1 under the 1940 Act, to the extent applicable. | ||
| 4. | Further Duties. In all matters relating to the performance of this
Contract, UBS Global |
||
| 5. | Delegation of UBS Global |
||
| 6. | Services Not Exclusive. The services furnished by UBS Global |
||
| 7. | Expenses. | ||
| (a) | During the term of this Contract, the Fund will bear all expenses not specifically
assumed by UBS Global |
||
| (b) | Expenses borne by the Fund will include but not be limited to the following
(which shall be in addition to the fees payable to and expenses incurred on behalf
of the Fund by UBS Global |
||
C-3
|
||
| (c) | The Fund may pay directly any expense incurred by it in its normal operations
and, if any such payment is consented to by UBS Global |
|
| (d) | UBS Global |
|
| (e) | The payment or assumption by UBS Global |
|
| (f) | UBS Global |
|
| 8. | Compensation. | |
| (a) | For the services provided and the expenses assumed pursuant to this Contract,
the Fund will pay to UBS Global |
|
| (b) | The fee shall be accrued weekly and payable monthly to UBS Global |
|
| (c) | If this Contract becomes effective or terminates before the end of any month, the fee for the period from the effective date to the end of the month or from the beginning of such month to the date of termination, as the case may be, shall be prorated according to the proportion which such period bears to the full month in which such effectiveness or termination occurs. | |
| 9. | Limitation of Liability of UBS Global |
|
C-4
| shareholders in connection with the matters
to which this Contract relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Contract. Any
person, even though also an officer, partner, employee, or agent of UBS Global |
|||
| 10. | Duration and Termination. | ||
| (a) | This Contract shall become effective upon the date first above written, provided that this Contract shall not take effect unless it has first been approved (i) by a vote of a majority of those directors of the Fund who are not parties to this Contract or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by vote of a majority of the Fund’s outstanding voting securities. | ||
| (b) | Unless sooner terminated as provided herein, this Contract shall continue automatically for successive periods of twelve months each, provided that such continuance is specifically approved at least annually (i) by a vote of a majority of those directors of the Fund who are not parties to this Contract or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval, and (ii) by the Board or by vote of a majority of the outstanding voting securities of the Fund. | ||
| (c) | Notwithstanding the foregoing, this Contract may be terminated at any time,
without the payment of penalty, by vote of the Board or by a vote of a majority
of the outstanding voting securities of the Fund on sixty days’ written notice
to UBS Global |
||
| 11. | Amendment of This Contract. |
||
| 12. | Governing Law. This Contract shall be construed in accordance with the laws of the State of Delaware and the 1940 Act. To the extent that the applicable laws of the State of Delaware conflict with the applicable provisions of the 1940 Act, the latter shall control. | ||
| 13. | Miscellaneous. The captions in this Contract are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. If any provision of this Contract shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Contract shall not be affected thereby. This Contract shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. As used in this Contract, the terms “majority of the outstanding voting securities,” “affiliated person,” “interested person,” “assignment,” “broker,” “investment adviser,” “national securities exchange,” “net assets,” “sale,” “sell” and “security” shall have the same meanings as such terms have in the 1940 Act, subject to | ||
C-5
|
such exemption as may be granted by the |
||
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written.
| INSURED MUNICIPAL INCOME FUND INC. | ||
| Attest: ____________________________________ Name: Title: |
By: ________________________________ Name: Title: |
|
| UBS GLOBAL ASSET MANAGEMENT (AMERICAS) INC. | ||
| Attest: ____________________________________ Name: Title: |
By: __________________________________ Name: Title: |
C-6
Exhibit D
Investment management, advisory and administrative services to other funds
The following table provides information regarding investment companies for which UBS Global AM provides investment management, advisory or sub-advisory services and that have investment objectives and strategies that are similar to those of the Fund. All of the information below is provided as of [ ], 2009.
| Net assets as of | ||||||
| Fund | Advisory fee | [ ], 2009 | Waiver/expense Limitation | |||
| Investment Grade Municipal Income Fund Inc. | Annual rate of 0.90% of the fund’s average weekly net assets attributable to common and auction preferred shares | [ ] | Since August 1, 2008, the fee is reduced pursuant to a voluntary fee waiver arrangement to 0.60% of the fund’s average weekly net assets attributable only to common shares. This voluntary fee reduction continues indefinitely and cannot be modified without the approval of the fund’s board of directors. |
D-1
Exhibit E
Principal executive officers and directors of UBS Global AM
Set forth below in alphabetical order is a list of the names, addresses and principal occupation of each principal executive officer and director of UBS Global AM with respect to the Fund. While each board director is named below, the list of executive officers has been shortened as the full list would be very long and contain names of persons whose functions are unrelated to the Fund.
| Name and address | Principal occupation*** | |
| Mark F. Kemper** | Managing Director, Secretary and Head of Legal – Americas | |
| Barry M. Mandinach* | Board Director, Managing Director and Chief Marketing Officer – Americas | |
| Joseph McGill* | Managing Director and Chief Compliance Officer – Americas | |
| John Moore** | Board Director, Managing Director, Treasurer and Head of Financial Control – Americas | |
| Kai R. Sotorp** | Board Director, President and Head of the Americas and Member of the UBS Group Managing Board |
| * | 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. | |
| *** | None of the principal executive officers and directors of UBS Global AM listed above have principal employment other than their respective position(s) with UBS Global AM. | |
E-1
Exhibit F
Officers of the Fund who are officers of UBS Global AM
Set forth below in alphabetical order are the officers of the Fund who also serve as officers of UBS Global AM:
| Name | Position(s) Held with the Fund | |
| Joseph J. Allessie | Vice President and Assistant Secretary | |
| Thomas Disbrow | Vice President and Treasurer | |
| Michael J. Flook | Vice President and Assistant Treasurer | |
| Elbridge T. Gerry III | Vice President | |
| Mark F. Kemper | Vice President and Secretary | |
| Joanne M. Kilkeary | Vice President and Assistant Treasurer | |
| Tammie Lee | Vice President and Assistant Secretary | |
| Steven J. LeMire | Vice President and Assistant Treasurer | |
| Joseph McGill | Vice President and Chief Compliance Officer | |
| Kevin McIntyre | Vice President | |
| Nancy D. Osborn | Vice President and Assistant Treasurer | |
| Eric Sanders | Vice President and Assistant Secretary | |
| Andrew Shoup | Vice President and Chief Operating Officer | |
| Kai R. Sotorp | President | |
| Keith A. Weller | Vice President and Assistant Secretary |
F-1
| Insured Municipal Income Fund Inc. |
||
 |
Insured Municipal Income Fund Inc. |
|
Notice of |
||
Notice of Internet Availability of Proxy Material
The Notice of Annual Meeting of Shareholders, Proxy Statement and proxy card are available at http://www.ubs.com/1/e/globalam/Americas/globalamus/globalamusii/ii_closed_end_funds.html
| PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE LOWER PORTION IN THE ENCLOSED ENVELOPE. | |
| P
R O X Y |
Insured Municipal Income Fund Inc. | ||||
| Common Stock Proxy | |||||
| Annual Meeting of Shareholders – August 12, 2009 | |||||
| PROXY SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY | |||||
The undersigned shareholder of Insured Municipal Income Fund Inc., a Maryland corporation (the “Company”),
hereby appoints Keith A. Weller and Cathleen Crandall, or either of them, as proxies for the undersigned, with
full power of substitution in each of them, to attend the Annual Meeting of Shareholders of the Company (the
“Meeting”) to be held on August 12, 2009 at 10:00 a.m., Eastern time, on the 16th Floor of the CBS Building
located at 51 West 52nd Street, New York, New York 10019-6114, and any adjournment or postponement
thereof, to cast on behalf of the undersigned all votes that the undersigned is entitled to cast at such Meeting
and otherwise to represent the undersigned at the Meeting with all powers possessed by the undersigned if
personally present at the Meeting. The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and of the accompanying Proxy Statement (the terms of each of which are incorporated
by reference herein) and revokes any proxy heretofore given with respect to such Meeting.
|
|||||
| CONTINUED AND TO BE SIGNED ON REVERSE SIDE | |||||
SEE REVERSE SIDE |
SEE REVERSE SIDE |
||||
| PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE LOWER PORTION IN THE ENCLOSED ENVELOPE. | |
| x | Please mark votes as in this example. |
The Board of Directors recommends a vote FOR the listed nominees, FOR proposals 3, 4 and 5 and AGAINST proposal 6. |
| 1. | Not Applicable: Proposal 1 is to be voted upon only by holders of | 3. | To approve a new investment advisory and | FOR | AGAINST | ABSTAIN | ||||||||||||||||
| auction preferred shares, as described in the Notice of Annual | administration contract with lower contractual | o | o | o | ||||||||||||||||||
| Meeting of Shareholders and accompanying Proxy Statement. | fees between the Fund and UBS Global Asset | |||||||||||||||||||||
| Management (Americas) Inc. (“UBS Global AM”) | ||||||||||||||||||||||
| 2. | To elect as directors: | |||||||||||||||||||||
| 01 – Richard Q. Armstrong 03 – Bernard H. Garil | 4. | To approve a change in the Fund’s investment | o | o | o | |||||||||||||||||
| 02 – Alan S. Bernikow 04 – Heather R. Higgins | policies to address recent market developments | |||||||||||||||||||||
| and make the Fund more competitive | ||||||||||||||||||||||
| o | Mark here to vote FOR all nominees |
|||||||||||||||||||||
| 5. | To approve a shareholder proposal recommending that | o | o | o | ||||||||||||||||||
| o | Mark here to WITHHOLD from all nominees |
the board of directors take action, subject to market conditions, to | ||||||||||||||||||||
| afford common and preferred shareholders an opportunity to | ||||||||||||||||||||||
| o | For all EXCEPT – To withhold a vote for one or more nominees, mark the box to the left and the corresponding numbered box(es) below. |
realize the net asset value of their shares | ||||||||||||||||||||
| 01 | 02 | 03 | 04 | 6. | To approve a shareholder proposal to terminate the investment | |||||||||||||||||
| o | o | o | o | advisory agreement between the Fund and UBS Global AM | ||||||||||||||||||
| 7. | To vote and otherwise represent the undersigned on any other matter that may properly come
before the Meeting or any adjournment or postponement thereof in the discretion of the proxy
holder. |
|||||||||||||||||||||
|
Authorized Signatures—This section must be completed for your vote to be counted.—Date and Sign Below |
||||||||||||||||||||||
| Date , 2009 | ||||||||||||||||||||||
| Signature | ||||||||||||||||||||||
| Signature, if held jointly | ||||||||||||||||||||||
| Title or Authority | ||||||||||||||||||||||
Please sign exactly as name(s) appears hereon. If shares are held by an individual,
sign your name exactly as it appears on this card. If shares are held jointly, either
party may sign, but the name of the party signing should conform exactly to the
name shown on this proxy card. If shares are held by a corporation, partnership
or similar account, the name and capacity of the individual signing the proxy card
should be indicated unless it is reflected in the form of registration. For example:
“ABC Corp., John Doe, Treasurer” |
||||||||||||||||||||||
Notice of Internet Availability of Proxy Material
The Notice of Annual Meeting of Shareholders, Proxy Statement and proxy card are available at http://www.ubs.com/1/e/globalam/Americas/globalamus/globalamusii/ii_closed_end_funds.html
| PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE LOWER PORTION IN THE ENCLOSED ENVELOPE. | |
| P
R O X Y |
Insured Municipal Income Fund Inc. | ||||
| Preferred Stock Proxy | |||||
| Annual Meeting of Shareholders – August 12, 2009 | |||||
| PROXY SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY | |||||
The undersigned shareholder of Insured Municipal Income Fund Inc., a Maryland corporation (the “Company”),
hereby appoints Keith A. Weller and Cathleen Crandall, or either of them, as proxies for the undersigned, with
full power of substitution in each of them, to attend the Annual Meeting of Shareholders of the Company (the
“Meeting”) to be held on August 12, 2009 at 10:00 a.m., Eastern time, on the 16th Floor of the CBS Building
located at 51 West 52nd Street, New York, New York 10019-6114, and any adjournment or postponement
thereof, to cast on behalf of the undersigned all votes that the undersigned is entitled to cast at such Meeting
and otherwise to represent the undersigned at the Meeting with all powers possessed by the undersigned if
personally present at the Meeting. The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and of the accompanying Proxy Statement (the terms of each of which are incorporated
by reference herein) and revokes any proxy heretofore given with respect to such Meeting.
|
|||||
| CONTINUED AND TO BE SIGNED ON REVERSE SIDE | |||||
SEE REVERSE SIDE |
SEE REVERSE SIDE |
||||
| PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE LOWER PORTION IN THE ENCLOSED ENVELOPE. | |
| x | Please mark votes as in this example. |
The
Board of Directors recommends a vote FOR the listed nominees, FOR proposal 3, 4 and 5 and AGAINST proposals 6. |
| 1. | To elect as directors: | 3. | To approve a new investment advisory and administration | FOR | AGAINST | ABSTAIN | |||||||||||||||
| 01 – Richard R. Burt | 02 – Meyer Feldberg | contract with lower contractual fees between the Fund | o | o | o | ||||||||||||||||
| o | Mark here to vote | o | Mark here to WITHHOLD | and UBS Global Asset Management (Americas) Inc. | |||||||||||||||||
| FOR all nominees | from all nominees | (“UBS Global AM”) | |||||||||||||||||||
| o | For all EXCEPT – To withhold a vote for one or more | 01 | 02 | 4. | To approve a change in the Fund’s investment policies | o | o | o | |||||||||||||
| nominees, mark the box to the left and the | o | o | to address recent market developments and make the | ||||||||||||||||||
| corresponding numbered box(es) to the right. | Fund more competitive | ||||||||||||||||||||
| 2. | To elect as directors: | 5. | To approve a shareholder proposal recommending that | o | o | o | |||||||||||||||
| 03 – Richard Q. Armstrong | 05 – Bernard H. Garil | the board of directors take action, subject to market | |||||||||||||||||||
| 04 – Alan S. Bernikow | 06 – Heather R. Higgins | conditions, to afford common and preferred shareholders an | |||||||||||||||||||
| opportunity to realize the net asset value of their shares | |||||||||||||||||||||
| o | Mark here to vote | o | Mark here to WITHHOLD | ||||||||||||||||||
| FOR all nominees | from all nominees | 6. | To approve a shareholder proposal to terminate the investment | o | o | o | |||||||||||||||
| advisory agreement between the Fund and UBS Global AM | |||||||||||||||||||||
| o | For all EXCEPT – To withhold a vote | 03 | 04 | 05 | 06 | ||||||||||||||||
| for one or more nominees, mark the | o | o | o | o | 7. | To vote and otherwise represent the undersigned on any other matter that may properly | |||||||||||||||
| box to the left and the corresponding | come before the Meeting or any adjournment or postponement thereof in the discretion | ||||||||||||||||||||
| numbered box(es) to the right. | of the proxy holder. | ||||||||||||||||||||
Authorized Signatures—This section must be completed for your vote to be counted.—Date and Sign Below |
|||||||||||||||||||||
| Date , 2009 | |||||||||||||||||||||
| Signature | |||||||||||||||||||||
| Signature, if held jointly | |||||||||||||||||||||
| Title or Authority | |||||||||||||||||||||
Please sign exactly as name(s) appears hereon. If shares are held by an
individual, sign your name exactly as it appears on this card. If shares are held
jointly, either party may sign, but the name of the party signing should conform
exactly to the name shown on this proxy card. If shares are held by a
corporation, partnership or similar account, the name and capacity of the
individual signing the proxy card should be indicated unless it is reflected in
the form of registration. For example: “ABC Corp., John Doe, Treasurer” |
|||||||||||||||||||||