UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-7528
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Insured Municipal Income Fund Inc.
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(Exact name of registrant as specified in charter)
51 West 52nd Street, New York, New York 10019-6114
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(Address of principal executive offices) (Zip code)
David M. Goldenberg
UBS Global Asset Management (US) Inc.
51 West 52nd Street
New York, NY 10019-6114
(Name and address of agent for service)
Copy to:
Jack W. Murphy, Esq.
Dechert LLP
1775 I Street, N.W.
Washington, DC 20006-2401
Registrant's telephone number, including area code: 212-882 5000
Date of fiscal year end: March 31
Date of reporting period: March 31, 2004
ITEM 1. REPORTS TO STOCKHOLDERS.
[UBS GLOBAL ASSET MANAGEMENT LOGO]
Insured Municipal Income Fund Inc.
Annual Report
March 31, 2004
Insured Municipal Income Fund Inc.
May 14, 2004
INSURED MUNICIPAL INCOME
FUND INC.
Dear Shareholder,
Investment Goal:
We present you with the annual report for High level of current income
Insured Municipal Income Fund Inc. (the exempt from federal
"Fund") for the fiscal year ended March 31, income tax, consistent with
2004. preservation of capital.
Performance
PORTFOLIO MANAGER:
For the fiscal year ended March 31, 2004, William Veronda, UBS Global
Insured Municipal Income Fund's net Asset Management (US) Inc.
asset value return was 4.68%. On a market
price basis, the Fund's return was 11.75%. COMMENCEMENT:
During the same time period, the Fund's peer June 8, 1993
group, as measured by the Lipper Insured
Municipal Debt Funds (Leveraged) median, NYSE SYMBOL:
generated net asset value and market PIF
price returns of 7.41% and 10.17%,
respectively. (For more performance DIVIDEND PAYMENT:
information, please refer to "Performance At Monthly
A Glance" on page 6).
The Fund used leverage during the fiscal period, which was 39.76% of total
assets as of March 31, 2004. Leverage can magnify returns on the upside and on
the downside, and can create wider dispersions of returns within the Fund's
peer group.
An Interview with Portfolio Manager William Veronda
Q. CAN YOU DESCRIBE THE ECONOMIC ENVIRONMENT DURING THE FISCAL YEAR?
A. During the reporting period, the US economy continued to gain momentum,
fueled by the ongoing effects of significantly higher military spending, an
increase in exports, and robust consumer and business spending. Gross
domestic product (GDP) figures confirmed the economy's growth: in the
second quarter of 2003, GDP came in at 3.3%, up from 1.4% for the prior
quarter. A third quarter 2003 GDP of 8.2% followed; this number, far higher
than anticipated, was the sharpest recorded advance of GDP since 1984.
Although estimated fourth quarter GDP came in at a lower-than-expected
4.1%, it was, nonetheless, viewed as a solid gain.
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Insured Municipal Income Fund Inc.
While first quarter 2004 GDP figures have not yet been released, the
economy appears to be moving forward at a strong pace. With the exception
of the job market, which has been slow to recover, most areas of the
economy are expanding, while overall inflation remains benign.
Q. HOW DID THE FEDERAL RESERVE BOARD (THE "FED") REACT TO THE ECONOMIC
ENVIRONMENT?
A. The Fed held rates steady throughout the period, as it has since it lowered
short-term interest rates to 1.00% on June 25, 2003. However, at its May 4,
2004 meeting (held after period end), there was a clear shift in the Fed's
stance, when, in its official statement, it noted, "accommodation can be
removed at a pace that is likely to be measured." Many view this as an
indication that the Fed could raise rates as early as its next meeting in
June.
Q. HOW DID THE BOND MARKET PERFORM DURING THE FISCAL YEAR?
A. Given the strengthening economy, the overall bond market was surprisingly
resilient during the reporting period. However, there were periods of
unnerving volatility. Early in the period, yields fell and prices rose as
investors were drawn to the relative safety offered by fixed income
securities in response to economic uncertainty and geopolitical concerns.
Then, beginning in June 2003, bond prices began to fall when a
less-than-hoped-for cut in the fed funds rate, diminishing concerns
regarding the potential for deflation, and fears that an improving economy
would lead to a less accommodative fiscal policy, triggered a selloff. The
market declined through July, before stabilizing and then recouping most of
its losses in August and September.
As 2004 began, a widely accepted expectation that the economy would
continue to expand created a less than promising outlook for fixed income.
However, despite the strong evidence that the economy was expanding,
continued weakness in the labor market created a somewhat muddled picture.
In February 2004, news that only 21,000 new jobs were created-significantly
less than forecasted-gave rise to concerns that consumer confidence could
weaken, and thus temper economic growth. Bonds rallied on the news.
Additionally, periodic "flights to quality" given geopolitical events,
including a terrorist attack in Spain and turmoil in the Middle East,
bolstered the bond market. The municipal market participated in the broad
fixed income rally, and was aided further by a strong demand for
municipals.
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2
Insured Municipal Income Fund Inc.
Q. HOW DID YOU POSITION THE FUND'S PORTFOLIO DURING THE REPORTING PERIOD?
A. The Fund's duration was held generally in line with that of its benchmark,
the Lehman Municipal Bond Index (the "Index"), during much of the period.
However, in early 2004, we adjusted the Fund's duration, moving it slightly
lower than the benchmark. We felt this cautious approach was warranted,
given our belief that rates would rise. This detracted from relative
results when yields fell and prices rose during the first quarter of 2004.
With regard to sector positioning, we continued to emphasize essential
service revenue bonds, including revenue-producing utilities such as water,
sewers and select electric power facilities. We also held select airport
revenue bonds; even though the airline industry itself is weak, the
strengthening economy has increased the need for airfreight and
transportation. Alternately, we underweighted the hospital sector, as we
believe that declining government reimbursements will likely continue and
lead to credit deterioration.
As we mentioned in our last report to shareholders, we had increased the
Fund's exposure to investment grade securities whose ratings are among the
very highest-that is, those that have achieved AAA status on their own
merits, without the benefit of insurance. This strategy proved beneficial,
as it helped us increase the Fund's level of diversification, while giving
us the opportunity to invest in a number of compelling opportunities.
Q. CAN YOU PROVIDE EXAMPLES OF HOLDINGS THAT WERE ADDED TO THE PORTFOLIO DURING
THE PERIOD?
A. Late in the fiscal year, we began adding some California revenue credits
that are not directly associated with the economic troubles in the state.
Examples of specific holdings included Los Angeles Water & Power and Los
Angeles County Sanitation District. We are also closely monitoring
California's fiscal condition, and are encouraged by the progress that has
been made on several fronts. If this trend continues, we expect to
selectively increase the Fund's exposure to the state's municipal
securities.
Q. WERE THERE ANY FACTORS THAT DETRACTED FROM RESULTS DURING THE PERIOD?
A. As mentioned previously, during the fiscal year, the Fund's duration was
shorter than that of its benchmark, because we did not believe it was
prudent to extend duration given the economic expansion and the potential
for rising interest rates and falling bond prices. However, this hurt
relative results as yields declined and bond prices rose over the fiscal
year.
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3
Insured Municipal Income Fund Inc.
Additionally, a number of bonds in the Fund's portfolio were "called" or
prematurely retired by issuers looking to take advantage of the low
interest rate environment-one example was Matagorda County Navigation
District No. 1 Revenue-Houston Light & Power, which was scheduled to mature
in March 2027 and offered a yield of 6.70%. Given today's lower rates, it
was not possible to replace these holdings with securities that offered
comparable yields.
Q: WERE THERE ANY OTHER FACTORS THAT AFFECTED THE FUND'S PERFORMANCE DURING THE
PERIOD?
A: In December 2003, the Fund generated a significant amount of new investor
assets that were then redeployed using the same positioning strategies
previously mentioned. Toward the end of 2003, we increased the Fund's
leverage from approximately 33% to 40%. While this could result in an
increase in the Fund's short-term volatility, we believe that over the
longer-term this strategy is consistent with our goal of preservation of
capital. It will also help us to moderately extend the Fund's duration. In
addition, we believe this increased leveraging will allow the Fund to
generate incremental dividend income.
Q. HOW DO YOU ANTICIPATE POSITIONING THE FUND'S PORTFOLIO GOING FORWARD?
A. Looking ahead, it is our belief that the US economy will continue to
expand. Given that interest rates are so low, we believe it is inevitable
that they will rise (and the Fed has indicated as much). Based on this
outlook, we expect to keep the Fund's duration neutral or slightly lower
than that of the Index. In terms of the Fund's portfolio, we are
comfortable with its current positioning. Should the economy continue to
expand, it will likely serve to improve the fiscal situations in a number
of states. If this occurs, we will look to identify select general
obligation bonds that we believe offer compelling opportunities.
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4
Insured Municipal Income Fund Inc.
Our ultimate objective in managing your investments is to help you successfully
meet your financial goals. We thank you for your continued support and welcome
any comments or questions you may have. For additional information on the UBS
funds*, please contact your financial advisor or visit us at
www.ubs.com/globalam-us.
[GRAPHIC OMITTED]
Sincerely,
/s/ Joseph A. Varnas /s/ William Veronda
Joseph A. Varnas William Veronda
President Portfolio Manager
Insured Municipal Income Fund Inc. Insured Municipal Income Fund Inc.
Managing Director Executive Director
UBS Global Asset Management (US) Inc. UBS Global Asset Management (US) Inc.
This letter is intended to assist shareholders in understanding how the Fund
performed during the fiscal year ended March 31, 2004, and reflects our views
at the time of its writing. Of course, these views may change in response to
changing circumstances, and they do not guarantee the future performance of the
markets or the Fund. We encourage you to consult your financial advisor
regarding your personal investment program.
* Mutual funds are sold by prospectus only. A prospectus contains more
complete information regarding investment objective, risks, charges and
expenses, and should be read carefully before investing.
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5
Insured Municipal Income Fund Inc.
PERFORMANCE AT A GLANCE
Average Annual Returns, Periods Ended 3/31/04
NET ASSET VALUE RETURNS 6 MONTHS 1 YEAR 5 YEARS 10 YEARS
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Insured Municipal Income Fund Inc. 2.56% 4.68% 5.36% 7.04%
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Lipper Insured Municipal Debt Funds
(Leveraged) Median 4.14% 7.41% 6.44% 7.30%
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MARKET PRICE RETURNS
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Insured Municipal Income Fund Inc. 8.10% 11.75% 6.78% 7.56%
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Lipper Insured Municipal Debt Funds
(Leveraged) Median 8.52% 10.17% 6.62% 8.16%
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Past performance does not predict future performance. The return and principal
value of an investment will fluctuate, so that an investor's shares, when sold,
may be worth more or less than their original cost. NAV return assumes, for
illustration only, that dividends were reinvested at the net asset value on the
ex-dividend dates. Market price return assumes dividends were reinvested under
the Dividend Reinvestment Plan. NAV and market price returns for periods of
less than one year are cumulative.
Lipper peer group data calculated by Lipper Inc.; used with permission. The
Lipper Median is the return of the fund that places in the middle of the peer
group.
SHARE PRICE, DIVIDEND AND YIELDS AS OF 3/31/04
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Market Price $ 14.48
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Net Asset Value (per share applicable to common shareholders) $ 15.39
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12-Month Net Investment Income Dividend (ended 3/31/04) $ 0.84
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March 2004 Dividend $ 0.07
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Market Yield* 5.80%
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NAV Yield* 5.46%
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IPO Yield* 5.60%
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* Market yield is calculated by multiplying the March dividend by 12 and
dividing by the month-end market price. NAV yield is calculated by
multiplying the March dividend by 12 and dividing by the month-end net
asset value. IPO yield is calculated by multiplying the March dividend by
12 and dividing by the initial public offering price of $15 per share.
Prices and yields will vary.
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6
Insured Municipal Income Fund Inc.
PORTFOLIO STATISTICS
CHARACTERISTICS 3/31/04 9/30/03 3/31/03
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Net Assets Applicable to
Common Shareholders (mm) $ 317.6 $ 323.1 $ 325.1
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Weighted Average Maturity* 10.7 yrs 13.5 yrs 14.1 yrs
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Weighted Average Duration* 4.8 yrs 5.2 yrs 4.4 yrs
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Weighted Average Coupon* 4.3% 4.9% 5.4%
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Leverage** 39.8% 31.7% 31.1%
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Callable/Maturing Within Five
Years* 14.4% 14.7% 6.6%
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Callable/Maturing Beyond Five
Years* 85.6% 85.3% 83.4%
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CREDIT QUALITY*** 3/31/04 9/30/03 3/31/03
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AAA/Aaa 143.8% 128.8% 142.6%
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A1/P1 17.9 14.6 3.7
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SP-1/MIG-1 2.7 1.3 -
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Liabilities in Excess of Other
Assets - - (0.2)
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Other Assets in Excess of
Liabilities 1.7 1.7 -
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Liquidation Value of Auction
Preferred Shares (66.1) (46.4) (46.1)
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TOTAL 100.0% 100.0% 100.0%
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TOP TEN STATES*** 3/31/04 9/30/03 3/31/03
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California 26.3% Texas 27.6% Texas 28.3%
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New York 23.5 California 21.0 Illinois 17.9
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Texas 22.0 Illinois 19.1 Pennsylvania 13.4
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Illinois 14.3 New York 13.0 Rhode Island 10.5
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Washington 11.6 Massachusetts 7.0 California 8.6
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Massachusetts 7.0 Rhode Island 6.2 Indiana 7.4
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North Carolina 6.9 Washington 6.1 North Carolina 7.0
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Rhode Island 6.3 Nevada 5.6 Alabama 4.8
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Florida 4.2 North Carolina 5.5 Michigan 3.9
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Michigan 3.8 Pennsylvania 4.4 Massachusetts 3.9
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TOTAL 125.9% 115.5% 105.7%
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TOP FIVE SECTORS*** 3/31/04 9/30/03 3/31/03
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Power 37.4% Power 33.6% Power 32.5%
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Water 26.8 Water 30.8 Pre-refunded 20.1
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Escrow-to-maturity 20.1 Escrow-to-maturity 16.1 Escrow-to-maturity 16.8
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Hospital 11.8 Hospital 10.1 Water 14.6
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Pre-refunded 15.8 Airport 8.4 Hospital 9.8
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TOTAL 111.9% 99.0% 93.8%
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* Weightings represent percentages of portfolio assets as of the dates
indicated. The Fund's portfolio is actively managed and its composition
will vary over time.
** As a percentage of total assets as of the dates indicated.
*** As a percentage of net assets applicable to common shareholders as of the
dates indicated. Credit quality ratings designated by Standard & Poor's
Rating Group and Moody's Investor Services, Inc. Both are independent
rating agencies.
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7
Insured Municipal Income Fund Inc.
Portfolio of Investments-March 31, 2004
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
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LONG-TERM MUNICIPAL BONDS - 143.79%
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ALABAMA - 3.07%
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$ 1,590 Alabama Water Pollution Control
Authority Revolving Fund
Loan-Series A (AMBAC Insured) Aaa AAA 08/15/17 6.750% $1,703,796
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5,000 Jefferson County Sewer
Revenue-Capital
Improvements-Series A
(Pre-refunded with U.S.
Government Securities to
02/01/2011 @ 101)
(FGIC Insured) Aaa AAA 02/01/40 5.500 5,814,750
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2,000 Jefferson County Sewer
Revenue-Series D (Pre-refunded
with U.S. Government Securities to
02/01/2007 @ 101) (FGIC Insured) Aaa AAA 02/01/27 5.750 2,237,580
---------------------------------------------------------------------------------------------------------------
9,756,126
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CALIFORNIA - 26.27%
10,000 California State Department of
Water Resources Power Supply
Revenue-Series A (AMBAC
Insured) Aaa AAA 05/01/16 5.500 11,292,600
---------------------------------------------------------------------------------------------------------------
3,060 California State Department of
Water Resources Power Supply
Revenue-Series A (MBIA Insured) Aaa AAA 05/01/12 5.250 3,480,261
---------------------------------------------------------------------------------------------------------------
4,000 California State Department of
Water Resources Revenue-
Series W (FSA Insured) Aaa AAA 12/01/14 5.500 4,695,160
---------------------------------------------------------------------------------------------------------------
30 California State General Obligation
(FGIC Insured) Aaa AAA 11/01/12 7.000 31,520
---------------------------------------------------------------------------------------------------------------
3,125 Contra Costa Water District Water
Revenue-Series L (FSA Insured) Aaa AAA 10/01/19 5.000 3,350,625
---------------------------------------------------------------------------------------------------------------
5,000 Contra Costa Water District Water
Revenue-Refunding-Series M
(FSA Insured) Aaa AAA 10/01/18 5.000 5,433,150
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2,000 Long Beach Finance Authority Lease
Revenue-Aquarium of the South
Pacific (AMBAC Insured) Aaa AAA 11/01/15 5.500 2,252,980
---------------------------------------------------------------------------------------------------------------
6,340 Los Angeles County Metropolitan
Transportation Authority Sales Tax
Revenue-Refunding-Proposition
C (MBIA Insured) Aaa AAA 07/01/12 5.250 7,253,277
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8,475 Los Angeles County Sanitation
Districts Financing Authority
Revenue-Capital Project-Series
A (FSA Insured) Aaa AAA 10/01/20 5.000 9,090,878
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5,000 Los Angeles General Obligation-
Series A (MBIA Insured) Aaa AAA 09/01/21 5.000 5,306,450
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3,000 Los Angeles University School
District-Series A (FSA Insured) Aaa AAA 07/01/20 5.250 3,289,800
---------------------------------------------------------------------------------------------------------------
3,000 Los Angeles Water & Power
Revenue-Power Systems-Series
A-SubSeries A-2 (MBIA Insured) Aaa AAA 07/01/16 5.000 3,288,210
---------------------------------------------------------------------------------------------------------------
7,000 Los Angeles Water & Power
Revenue-Power Systems-Series
A-A-1 (FSA Insured) Aaa AAA 07/01/21 5.250 7,502,600
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Insured Municipal Income Fund Inc.
Portfolio of Investments-March 31, 2004
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
---------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS - (CONTINUED)
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CALIFORNIA - (CONCLUDED)
$ 1,000 Marin Municipal Water District
Water Revenue (AMBAC Insured) Aaa AAA 07/01/18 5.000% $1,076,900
7,000 Sacramento Municipal Utility
Revenue-Mud-Series R
(MBIA Insured) Aaa AAA 08/15/19 5.000 7,548,030
4,000 San Francisco City & County Airport
Commission International
Airport- Second Series 27B AAA 05/01/15 5.250 4,393,560
(FGIC Insured) Aaa
5,580 Southern California Public Power
Authority Transmission Project
Revenue-Refunding AAA 07/01/12 7.300 # 4,135,338
(FGIC Insured) Aaa
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83,421,339
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DISTRICT OF COLUMBIA - 2.30%
2,650 District of Columbia General
Obligation-Series B
(AMBAC Insured) Aaa AAA 06/01/16 5.000 2,872,706
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4,000 District of Columbia Hospital
Revenue-Medlantic
Healthcare-Series A (Escrowed to
Maturity) (MBIA Insured) Aaa AAA 08/15/14 5.750 4,424,040
---------------------------------------------------------------------------------------------------------------
7,296,746
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FLORIDA - 4.19%
9,215 Florida State Department of
Environmental Protection
Preservation Revenue-Florida
Forever-Series B (MBIA Insured) Aaa AAA 07/01/08 5.000 10,267,998
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2,500 Miami-Dade County Expressway
Authority Toll System Revenue
(Pre-refunded with U.S.
Government Securities to
07/01/2010 @ 101) (FGIC Insured) Aaa AAA 07/01/29 6.375 3,031,675
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13,299,673
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GEORGIA - 1.04%
1,015 Columbus Building Authority Lease
Revenue-Series A (FGIC Insured) Aaa AAA 01/01/16 5.250 1,140,657
---------------------------------------------------------------------------------------------------------------
2,000 Georgia Municipal Electric Authority
Power Revenue-Series A
(FSA Insured) Aaa AAA 01/01/18 5.000 2,146,320
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3,286,977
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HAWAII - 1.80%
5,000 Hawaii State General Obligation-
Series CZ (Pre-refunded with U.S.
Government Securities to
07/01/2012 @ 100) (FSA Insured) Aaa AAA 07/01/20 5.250 5,724,150
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ILLINOIS - 12.48%
8,400 Chicago O'Hare International Airport
Revenue-Second Lien-
Series A (MBIA Insured) Aaa AAA 01/01/15 6.375 8,868,804
---------------------------------------------------------------------------------------------------------------
7,325 Chicago Project & Refunding-
Series A (AMBAC Insured) Aaa AAA 01/01/42 5.000 7,518,673
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1,000 Chicago Project & Refunding-
Series A (MBIA Insured) Aaa AAA 01/01/14 5.500 1,136,500
---------------------------------------------------------------------------------------------------------------
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9
Insured Municipal Income Fund Inc.
Portfolio of Investments-March 31, 2004
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
---------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS - (CONTINUED)
---------------------------------------------------------------------------------------------------------------
ILLINOIS - (CONCLUDED)
$ 4,000 Illinois Development Finance
Authority Pollution Control
Revenue-Commonwealth Edison
Co. Project-Series D
(AMBAC Insured) Aaa AAA 03/01/15 6.750% $4,270,160
---------------------------------------------------------------------------------------------------------------
4,500 Illinois Health Facilities Authority
Revenue-Franciscan Sisters
Health Care-Series C (Escrowed
to Maturity) (MBIA Insured) Aaa AAA 09/01/18 5.750 5,314,320
---------------------------------------------------------------------------------------------------------------
2,000 Illinois Sales Tax Revenue-Series 2
(FGIC Insured) Aaa AAA 06/15/16 5.500 2,316,740
---------------------------------------------------------------------------------------------------------------
3,000 Kane McHenry Cook & De Kalb
Counties-United School District
No. 300 (MBIA Insured) Aaa AAA 12/01/15 5.500 3,378,750
---------------------------------------------------------------------------------------------------------------
5,000 Metropolitan Pier & Exposition
Authority-Illinois Dedicated State
Tax Capital Appreciation-Series Aaa AAA 06/15/10 6.650 4,099,650
---------------------------------------------------------------------------------------------------------------
2,395 Metropolitan Pier & Exposition
Authority-Illinois Dedicated State
Tax-Pre-refunded-Series A-2002
(FGIC Insured) Aaa AAA 12/15/23 5.500 2,732,767
---------------------------------------------------------------------------------------------------------------
39,636,364
---------------------------------------------------------------------------------------------------------------
INDIANA - 0.35%
1,000 Indiana University Revenue- Student
Fee-Series 0 (FGIC Insured) Aaa AAA 08/01/18 5.250 1,100,600
---------------------------------------------------------------------------------------------------------------
KENTUCKY - 2.69%
33,035 Louisville & Jefferson County Visitors
& Convention Commission-
Capital Appreciation-
SubSeries BB (Pre-refunded with
U.S. Government Securities to
01/02/2010 @ 30.98) NR AAA 12/01/25 7.500 # 8,550,119
---------------------------------------------------------------------------------------------------------------
MAINE - 1.55%
4,785 Maine Health & Higher Educational
Facilities Authority Revenue-
Series A (Escrowed to Maturity)
(FSA Insured) Aaa AAA 07/01/23 5.500 4,894,194
---------------------------------------------------------------------------------------------------------------
30 Maine Health & Higher Educational
Facilities Authority
Revenue-Series B (Pre-refunded
with U.S. Government Securities to
07/01/04 @ 102) (FSA Insured) Aaa AAA 07/01/24 7.000 31,045
---------------------------------------------------------------------------------------------------------------
4,925,239
---------------------------------------------------------------------------------------------------------------
MASSACHUSETTS - 2.11%
2,800 Massachusetts Water Pollution
Abatement Trust MWRA
Program-Series A Aaa AAA 08/01/20 5.250 3,045,812
---------------------------------------------------------------------------------------------------------------
3,390 Massachusetts Water Pollution
Abatement Trust Pool Program
Bonds-Series 8 Aaa AAA 08/01/17 5.000 3,668,014
---------------------------------------------------------------------------------------------------------------
6,713,826
---------------------------------------------------------------------------------------------------------------
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10
Insured Municipal Income Fund Inc.
Portfolio of Investments-March 31, 2004
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
---------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS - (CONTINUED)
---------------------------------------------------------------------------------------------------------------
MICHIGAN - 3.76%
$ 4,475 Eastern Michigan University
Revenue-Series A (FGIC Insured) Aaa AAA 06/01/19 5.000% $4,804,673
---------------------------------------------------------------------------------------------------------------
2,880 Michigan Municipal Bond Authority
Clean Water Revenue Fund Aaa AAA 10/01/19 5.250 3,159,792
---------------------------------------------------------------------------------------------------------------
3,625 Michigan Municipal Bond Authority
Clean Water Revenue Revolving
Fund Aaa AAA 10/01/18 5.250 3,977,241
---------------------------------------------------------------------------------------------------------------
11,941,706
---------------------------------------------------------------------------------------------------------------
MINNESOTA - 1.69%
5,015 Minneapolis & St. Paul Metropolitan
Airports Commission Airport
Revenue-SubSeries A
(MBIA Insured) Aaa AAA 01/01/19 5.000 5,381,897
---------------------------------------------------------------------------------------------------------------
MISSOURI - 1.67%
1,740 St. Louis Airport Revenue-Capital
Improvement Project-Series A
(MBIA Insured) Aaa AAA 07/01/15 5.375 1,944,171
---------------------------------------------------------------------------------------------------------------
2,035 St. Louis Airport Revenue-Capital
Improvement Project-Series A
(MBIA Insured) Aaa AAA 07/01/16 5.375 2,260,051
---------------------------------------------------------------------------------------------------------------
1,000 St. Louis Airport Revenue-Capital
Improvement Project-Series A
(MBIA Insured) Aaa AAA 07/01/18 5.375 1,104,620
---------------------------------------------------------------------------------------------------------------
5,308,842
---------------------------------------------------------------------------------------------------------------
NEVADA - 3.71%
4,000 Washoe County Gas & Water
Facilities Revenue-Sierra Pacific
Power Co. Project-Series B
(MBIA Insured) Aaa AAA 06/01/23 5.900 4,092,760
---------------------------------------------------------------------------------------------------------------
7,500 Washoe County Water Facilities
Revenue-Sierra Pacific Power Co.
Project-Series A (MBIA Insured) Aaa AAA 06/01/23 5.900 7,673,925
---------------------------------------------------------------------------------------------------------------
11,766,685
---------------------------------------------------------------------------------------------------------------
NEW JERSEY - 1.64%
5,000 Salem County Industrial Pollution
Control Finance Authority
Revenue-Public Service Electric &
Gas-Series D (MBIA Insured) Aaa AAA 10/01/29 6.550 5,222,750
---------------------------------------------------------------------------------------------------------------
NEW MEXICO - 2.83%
8,850 Gallup Pollution Control Revenue-
Plains Electric Generation
(MBIA Insured) Aaa AAA 08/15/17 6.650 8,976,821
---------------------------------------------------------------------------------------------------------------
NEW YORK - 14.30%
2,920 New York State Dormitory Authority
Revenue-Columbia
University-Series A Aaa AAA 07/01/16 5.125 3,250,515
---------------------------------------------------------------------------------------------------------------
3,000 New York State Dormitory Authority
Revenue-Series B (FGIC Insured) Aaa AAA 11/15/29 5.250 3,372,330
---------------------------------------------------------------------------------------------------------------
3,000 New York State Dormitory Authority
Revenue-Sloan Kettering
Center-Series 1 (MBIA Insured) Aaa AAA 07/01/16 5.000 3,271,050
---------------------------------------------------------------------------------------------------------------
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11
Insured Municipal Income Fund Inc.
Portfolio of Investments-March 31, 2004
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
---------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS - (CONTINUED)
---------------------------------------------------------------------------------------------------------------
NEW YORK - (CONCLUDED)
$ 5,000 New York State Dormitory Authority
Revenue-State University
Educational Facilities-Series A
(Pre-refunded with U.S.
Government Securities to
05/15/2012 @ 101) (FGIC Insured) Aaa AAA 05/15/27 5.000% $5,676,150
---------------------------------------------------------------------------------------------------------------
2,365 Hempstead Town-Various
Purpose-Series A (MBIA Insured) Aaa AAA 02/01/14 5.000 2,664,173
---------------------------------------------------------------------------------------------------------------
2,000 Long Island Power Authority Electric
System Revenue-Series A
(FSA Insured) Aaa AAA 12/01/22 5.125 2,107,300
---------------------------------------------------------------------------------------------------------------
5,000 Metropolitan Transportation
Authority Revenue-Series A
(AMBAC Insured) Aaa AAA 11/15/16 5.500 5,670,850
---------------------------------------------------------------------------------------------------------------
4,000 Metropolitan Transportation
Authority Revenue-Series A
(FGIC Insured) Aaa AAA 11/15/17 5.000 4,356,720
---------------------------------------------------------------------------------------------------------------
1,200 New York City General Obligation-
Series F (MBIA-IBC Insured) Aaa AAA 08/01/12 5.750 1,404,228
---------------------------------------------------------------------------------------------------------------
11,555 Triborough Bridge & Tunnel
Authority Revenue-General
Purpose-Series Y Aa3 AAA 01/01/12 6.000 13,645,299
---------------------------------------------------------------------------------------------------------------
45,418,615
---------------------------------------------------------------------------------------------------------------
NORTH CAROLINA - 6.90%
3,505 Charlotte Certificates of
Participation
Refunding-Convention Facilities
Project-Series A (MBIA Insured) Aaa AAA 08/01/12 5.000 3,917,468
---------------------------------------------------------------------------------------------------------------
15,000 North Carolina Eastern Municipal
Power Agency Power System
Revenue-(AMBAC Insured)+ Aaa AAA 01/01/18 6.000 17,989,350
---------------------------------------------------------------------------------------------------------------
21,906,818
---------------------------------------------------------------------------------------------------------------
OHIO - 0.66%
1,870 Ohio Water Development
Authority- Pollution Control
Facilities Revenue- Water Control
Loan Fund-Water Quality Series
(MBIA Insured) Aaa AAA 06/01/13 5.500 2,098,234
---------------------------------------------------------------------------------------------------------------
PENNSYLVANIA - 2.00%
1,000 Philadelphia General Obligation
(FSA Insured) Aaa AAA 03/15/13 5.250 1,117,390
---------------------------------------------------------------------------------------------------------------
1,000 Philadelphia General Obligation
(FSA Insured) Aaa AAA 03/15/14 5.250 1,110,480
---------------------------------------------------------------------------------------------------------------
3,750 Philadelphia School District-Series
A (MBIA Insured) Aaa AAA 04/01/16 5.250 4,116,225
---------------------------------------------------------------------------------------------------------------
6,344,095
---------------------------------------------------------------------------------------------------------------
RHODE ISLAND - 6.25%
10,000 Rhode Island Depositors Economic
Protection Corp. Special
Obligation- Series A (Escrowed to
Maturity) (FSA Insured) NR AAA 08/01/14 5.750 11,872,125
---------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
12
Insured Municipal Income Fund Inc.
Portfolio of Investments-March 31, 2004
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
---------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS - (CONTINUED)
---------------------------------------------------------------------------------------------------------------
RHODE ISLAND - (CONCLUDED)
$ 7,000 Rhode Island Depositors Economic
Protection Corp. Special
Obligation- Series B
(Pre-refunded with U.S.
Government Securities
to 02/01/11 @ 100) (MBIA Insured) Aaa AAA 08/01/21 5.250% $7,966,770
---------------------------------------------------------------------------------------------------------------
19,838,895
---------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA - 3.21%
2,625 Charleston County Hospital Facilities
Revenue-Bon Secours Health
System Project (Escrowed to
Maturity) (FSA Insured) Aaa AAA 08/15/25 5.625 2,685,559
---------------------------------------------------------------------------------------------------------------
5,650 Charleston South Carolina
Waterworks & Sewer
Revenue-Refunding (FSA-CR
Insured) NR AAA 01/01/11 5.000 6,365,007
---------------------------------------------------------------------------------------------------------------
1,000 Myrtle Beach Water & Sewer
Revenue System (FGIC Insured) Aaa AAA 03/01/15 5.375 1,129,440
---------------------------------------------------------------------------------------------------------------
10,180,006
---------------------------------------------------------------------------------------------------------------
TEXAS - 20.45%
2,000 Corpus Christi Utilities System
Revenue-Refunding &
Improvement (FSA Insured) Aaa AAA 07/15/17 5.250 2,205,620
---------------------------------------------------------------------------------------------------------------
2,120 Frisco Certificates Obligation-
Series A (FGIC Insured) Aaa AAA 02/15/14 5.250 2,367,277
---------------------------------------------------------------------------------------------------------------
3,000 Harris County Toll Road Sub-Lien
(FGIC Insured) Aaa AAA 08/01/09 6.000 3,505,920
---------------------------------------------------------------------------------------------------------------
6,000 Houston Water & Sewer System
Revenue-Junior Lien-Series A
(FSA Insured) Aaa AAA 12/01/15 5.500 6,753,240
---------------------------------------------------------------------------------------------------------------
2,000 Irving Independent School District
Refunding-Capital
Appreciation-Series A
(PSF-GTD Insured) Aaa AAA 02/15/12 4.960# 1,490,180
---------------------------------------------------------------------------------------------------------------
2,000 Jefferson County (FGIC Insured) Aaa AAA 08/01/20 5.250 2,162,320
---------------------------------------------------------------------------------------------------------------
10,000 Lubbock Health Facilities
Development Corp.-Hospital
Revenue-Methodist
Hospital-Series A (Pre-refunded
with U.S. Government Securities to
12/01/05 @ 100) (AMBAC Insured) Aaa AAA 12/01/22 5.900 10,757,500
---------------------------------------------------------------------------------------------------------------
7,900 North Texas Turnpike Authority
Dallas North Turnpike Systems
Revenue- Series A
(AMBAC Insured) Aaa AAA 01/01/21 5.000 8,334,579
---------------------------------------------------------------------------------------------------------------
4,115 San Antonio Electric & Gas
Revenue-
(Escrowed to Maturity) Aa1 AAA 02/01/19 5.650 4,833,438
---------------------------------------------------------------------------------------------------------------
9,000 San Antonio Electric & Gas
Revenue-Unrefunded (FSA-CR
Insured) Aaa AAA 02/01/12 5.000 10,062,630
---------------------------------------------------------------------------------------------------------------
155 San Antonio Water Revenue
(MBIA Insured) Aaa AAA 05/15/16 6.000 174,605
---------------------------------------------------------------------------------------------------------------
720 San Antonio Water Revenue
(Pre-refunded with U.S.
Government Securities to
05/15/07 @ 100) (MBIA Insured) Aaa AAA 05/15/16 6.000 851,947
---------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
13
Insured Municipal Income Fund Inc.
Portfolio of Investments-March 31, 2004
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
---------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS - (CONCLUDED)
---------------------------------------------------------------------------------------------------------------
TEXAS - (CONCLUDED)
$ 6,110 Texas A&M University Fund
Refunded Aaa NR 07/01/17 5.250% $ 6,810,328
---------------------------------------------------------------------------------------------------------------
4,170 Williamson County General
Obligation (FSA Insured) Aaa AAA 02/15/17 5.500 4,645,713
---------------------------------------------------------------------------------------------------------------
64,955,297
---------------------------------------------------------------------------------------------------------------
UTAH - 2.11%
2,000 Utah Municipal Power System
Revenue-Payson Power
Project-Series A (FSA Insured) Aaa AAA 04/01/17 5.250 2,203,280
---------------------------------------------------------------------------------------------------------------
2,085 Utah Municipal Power System
Revenue-Payson Power
Project-Series A (FSA Insured) Aaa AAA 04/01/18 5.000 2,236,413
---------------------------------------------------------------------------------------------------------------
2,055 Utah Water Finance Agency
Revenue-Pooled Loan Financing
Program-Series C
(AMBAC Insured) Aaa NR 10/01/18 5.250 2,259,349
---------------------------------------------------------------------------------------------------------------
6,699,042
---------------------------------------------------------------------------------------------------------------
WASHINGTON - 9.02%
5,210 Washington State Public Power
Supply Revenue
Refunding-Systems Nuclear
Project No. 2-Series A
(MBIA Insured) Aaa AAA 07/01/11 6.550 # 4,045,461
---------------------------------------------------------------------------------------------------------------
2,220 Cowlitz County School
District No. 458 Kelso Aaa NR 12/01/15 5.750 2,561,791
---------------------------------------------------------------------------------------------------------------
1,000 Cowlitz County School
District No. 458 Kelso Aaa NR 12/01/18 5.750 1,145,870
---------------------------------------------------------------------------------------------------------------
2,000 Energy Northwest Electric
Revenue- Columbia Generator
Station-Series F (MBIA Insured) Aaa AAA 07/01/18 5.000 2,151,640
---------------------------------------------------------------------------------------------------------------
2,175 Energy Northwest Electric
Revenue- Project No. 1-Series A
(MBIA Insured) Aaa AAA 07/01/15 5.750 2,489,353
---------------------------------------------------------------------------------------------------------------
2,000 King County School District No. 403
Renton (FGIC Insured) Aaa AAA 12/01/14 5.250 2,204,360
---------------------------------------------------------------------------------------------------------------
5,000 Seattle Water Systems Revenue Aaa AAA 09/01/19 5.000 5,364,600
---------------------------------------------------------------------------------------------------------------
3,625 Snohomish County School District
No. 015 Edmonds (FGIC Insured) Aaa AAA 12/01/15 5.250 3,962,596
---------------------------------------------------------------------------------------------------------------
4,315 Spokane County -Refunding
-Series B (MBIA Insured) Aaa AAA 12/01/10 5.000 4,713,318
---------------------------------------------------------------------------------------------------------------
28,638,989
---------------------------------------------------------------------------------------------------------------
WEST VIRGINIA - 3.20%
10,000 Marshall County Pollution Control
Revenue-Ohio Power
Project-Series D (MBIA Insured) Aaa AAA 04/01/22 5.900 10,152,600
---------------------------------------------------------------------------------------------------------------
WISCONSIN - 2.54%
6,215 Wisconsin State Clean Water
Revenue-Refunding-Series 2
(MBIA Insured) Aaa AAA 06/01/07 5.000 6,813,691
---------------------------------------------------------------------------------------------------------------
1,105 Ladysmith-Hawkins School District
Refunding (FGIC Insured) Aaa NR 04/01/20 5.500 1,266,297
---------------------------------------------------------------------------------------------------------------
8,079,988
---------------------------------------------------------------------------------------------------------------
Total Long-Term Municipal Bonds (cost-$440,605,190) 456,622,439
---------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
14
Insured Municipal Income Fund Inc.
Portfolio of Investments-March 31, 2004
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
---------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL NOTES - 20.61%
---------------------------------------------------------------------------------------------------------------
ILLINOIS - 1.80%
$ 5,700 Illinois Health Facilities Authority
Revenue-Resurrection
Health-Series A (FSA Insured) VMIG-1 A-1 04/01/04 1.130%* $5,700,000
---------------------------------------------------------------------------------------------------------------
MASSACHUSETTS - 4.84%
2,980 Massachusetts State Health &
Education Facilities Authority
Revenue-Capital Asset
Program-Series B (MBIA Insured) VMIG-1 A-1+ 04/01/04 1.100* 2,980,000
---------------------------------------------------------------------------------------------------------------
3,800 Massachusetts State Health &
Education Facilities Authority
Revenue-Capital Asset
Program-Series C (MBIA Insured) VMIG-1 A-1+ 04/01/04 1.100* 3,800,000
---------------------------------------------------------------------------------------------------------------
8,600 Massachusetts State Health &
Education Facilities Authority
Revenue-Capital Assets
Program-Series D (MBIA Insured) VMIG-1 NR 04/01/04 1.080* 8,600,000
---------------------------------------------------------------------------------------------------------------
15,380,000
---------------------------------------------------------------------------------------------------------------
MISSOURI - 0.66%
2,100 Missouri Development Finance
Board Cultural Facilities
Revenue-Nelson Gallery
Funding-Series B (MBIA Insured) VMIG-1 A-1+ 04/01/04 1.120* 2,100,000
---------------------------------------------------------------------------------------------------------------
NEW YORK - 9.16%
2,420 New York City General Obligation-
Series B-SubSeries B-3
(MBIA Insured) VMIG-1 A-1 04/01/04 1.100* 2,420,000
---------------------------------------------------------------------------------------------------------------
1,700 New York City General Obligation-
Series B-SubSeries B-4
(MBIA Insured) VMIG-1 A-1+ 04/01/04 1.100* 1,700,000
---------------------------------------------------------------------------------------------------------------
3,060 New York City General Obligation-
Series B-SubSeries B-6
(MBIA Insured) VMIG-1 A-1 04/01/04 1.060* 3,060,000
---------------------------------------------------------------------------------------------------------------
5,300 New York City General Obligation-
Series B-2-SubSeries B-5
(MBIA Insured) VMIG1 A-1+ 04/01/04 1.060* 5,300,000
---------------------------------------------------------------------------------------------------------------
200 New York City General Obligation-
Series H-SubSeries H-2
(MBIA Insured) VMIG-1 A-1 04/01/04 1.060* 200,000
---------------------------------------------------------------------------------------------------------------
2,500 New York City General Obligation-
SubSeries A-6 (FSA Insured) VMIG-1 A-1+ 04/01/04 1.100* 2,500,000
---------------------------------------------------------------------------------------------------------------
13,905 New York City Municipal Water
Finance Authority Water & Sewer
Systems Revenue-Series C
(FGIC Insured) VMIG1 A-1+ 04/01/04 1.100* 13,905,000
---------------------------------------------------------------------------------------------------------------
29,085,000
---------------------------------------------------------------------------------------------------------------
TEXAS - 1.54%
3,700 Harris County Health Facilities
Development Corporate Hospital
Revenue-Texas Childrens
Hospital-Series B-1
(MBIA Insured) VMIG-1 A-1+ 04/01/04 1.130* 3,700,000
---------------------------------------------------------------------------------------------------------------
1,200 Harris County Health Facilities
Development Corporate Special
Facilities Revenue-Texas Medical
Center Project-Series B
(FSA Insured) VMIG-1 A-1+ 04/01/04 1.120* 1,200,000
---------------------------------------------------------------------------------------------------------------
4,900,000
---------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
15
Insured Municipal Income Fund Inc.
Portfolio of Investments-March 31, 2004
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATE RATE VALUE
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL NOTES - (CONCLUDED)
---------------------------------------------------------------------------------------------------------------
WASHINGTON - 2.61%
$ 8,300 Washington State Health Care
Facilities-Authority
Revenue-Providence
Services-Series A (MBIA Insured) VMIG-1 A-1+ 04/01/04 1.120%* $ 8,300,000
---------------------------------------------------------------------------------------------------------------
Total Short-Term Municipal Notes (cost-$65,465,000) 65,465,000
---------------------------------------------------------------------------------------------------------------
Total Investments (cost-$506,070,190)-164.40% 522,087,439
---------------------------------------------------------------------------------------------------------------
Other assets in excess of liabilities-1.73% 5,480,946
---------------------------------------------------------------------------------------------------------------
Liquidation Value of Auction Preferred Shares (66.13%) (210,000,000)
---------------------------------------------------------------------------------------------------------------
Net Assets applicable to common shareholders-100.00% $ 317,568,385
===============================================================================================================
* Variable rate demand notes are payable on demand. The maturity dates shown
are the next interest rate reset dates; the interest rates shown are the
current rates as of March 31, 2004.
# Interest rates shown reflect yield to maturity at purchase date for zero
coupon bonds.
+ Entire or partial amount pledged as collateral for futures transactions.
NR - Not Rated
AMBAC - American Municipal Bond Assurance Corporation
CR - Custodial Receipts
FGIC - Financial Guaranty Insurance Company
FSA - Financial Security Assurance
GTD - Guaranteed
IBC - Insured Bond Certificate
MBIA - Municipal Bond Investors Assurance
PSF - Permanent School Fund
NUMBER OF IN EXPIRATION UNREALIZED
CONTRACTS CONTRACTS TO RECEIVE EXCHANGE FOR DATES DEPRECIATION
------------------------------------------------------------------------------------------
FUTURES CONTRACTS
------------------------------------------------------------------------------------------
U.S. Treasury Note
100 10 Year Futures $11,428,125 June 2004 $ (112,500)
------------------------------------------------------------------------------------------
U.S. Treasury Bond
70 20 Year Futures 7,861,875 June 2004 (122,500)
------------------------------------------------------------------------------------------
$ (235,000)
------------------------------------------------------------------------------------------
See accompanying notes to financial statements
--------------------------------------------------------------------------------
16
Insured Municipal Income Fund Inc.
Statement of Assets and Liabilities - March 31, 2004
ASSETS:
Investments in securities, at value (cost-$506,070,190) $ 522,087,439
-----------------------------------------------------------------------------------------
Cash 27,658
-----------------------------------------------------------------------------------------
Interest receivable 6,000,423
-----------------------------------------------------------------------------------------
Other assets 46,683
-----------------------------------------------------------------------------------------
Total assets 528,162,203
-----------------------------------------------------------------------------------------
LIABILITIES:
Payable to investment advisor and administrator 315,978
-----------------------------------------------------------------------------------------
Payable for variation margin 104,375
-----------------------------------------------------------------------------------------
Dividends payable to auction preferred shareholders 19,169
-----------------------------------------------------------------------------------------
Accrued expenses and other liabilities 154,296
-----------------------------------------------------------------------------------------
Total liabilities 593,818
-----------------------------------------------------------------------------------------
Auction Preferred Shares Series A, B, C, D, E & F-4,200 non-participating
shares authorized, issued and outstanding; $0.001 par value; $50,000
liquidation value per share 210,000,000
-----------------------------------------------------------------------------------------
Net assets applicable to common shareholders $ 317,568,385
-----------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Common Stock-$0.001 par value; 199,997,000 shares authorized;
20,628,363 shares issued and outstanding 301,976,191
-----------------------------------------------------------------------------------------
Undistributed net investment income 1,619,771
-----------------------------------------------------------------------------------------
Accumulated net realized loss from investment
activities and futures (1,809,826)
-----------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures 15,782,249
-----------------------------------------------------------------------------------------
Net assets applicable to common shareholders $ 317,568,385
-----------------------------------------------------------------------------------------
Net asset value per common share ($317,568,385 applicable to 20,628,363
common shares outstanding) $ 15.39
=========================================================================================
See accompanying notes to financial statements
17
Insured Municipal Income Fund
Statement of Operations
For the Year
Ended
March 31,
2004
--------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 21,592,079
--------------------------------------------------------------------------------------
EXPENSES:
Investment advisory and administration fees 4,401,170
--------------------------------------------------------------------------------------
Auction Preferred Shares expenses 348,313
--------------------------------------------------------------------------------------
Custody and accounting 280,411
--------------------------------------------------------------------------------------
Professional fees 69,753
--------------------------------------------------------------------------------------
Reports and notices to shareholders 49,439
--------------------------------------------------------------------------------------
Directors' fees 8,168
--------------------------------------------------------------------------------------
Transfer agency fees 7,423
--------------------------------------------------------------------------------------
Other expenses 10,460
--------------------------------------------------------------------------------------
5,175,137
--------------------------------------------------------------------------------------
Less: Fee waivers from investment advisor and administrator (867,058)
--------------------------------------------------------------------------------------
Net expenses 4,308,079
--------------------------------------------------------------------------------------
Net investment income 17,284,000
--------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
NET REALIZED GAINS (LOSSES) FROM:
Investments 9,123,711
--------------------------------------------------------------------------------------
Futures (256,606)
--------------------------------------------------------------------------------------
NET CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION OF:
Investments (8,581,660)
--------------------------------------------------------------------------------------
Futures (235,000)
--------------------------------------------------------------------------------------
Net realized and unrealized gains from investment activities 50,445
--------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO AUCTION PREFERRED SHAREHOLDERS
FROM:
Net investment income (1,410,363)
--------------------------------------------------------------------------------------
Net realized gain from investment activties (335,308)
--------------------------------------------------------------------------------------
Total dividends and distributions to auction preferred shareholders (1,745,671)
--------------------------------------------------------------------------------------
Net increase in net assets applicable to common shareholders
resulting from operations $ 15,588,774
--------------------------------------------------------------------------------------
See accompanying notes to financial statements
--------------------------------------------------------------------------------
18
Insured Municipal Income Fund Inc.
Statement of Changes in Net Assets Applicable to Common Shareholders
For the Years Ended
March 31,
-----------------------------------
2004 2003
--------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 17,284,000 $ 20,080,569
--------------------------------------------------------------------------------------------
Net realized gains from investment activities and
futures 8,867,105 6,118,115
--------------------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation of
investments and futures (8,816,660) 5,616,365
--------------------------------------------------------------------------------------------
COMMON SHARE EQUIVALENT OF DIVIDEND AND
DISTRIBUTIONS TO AUCTION PREFERRED SHAREHOLDERS
FROM:
Net investment income (1,410,363) (1,978,974)
--------------------------------------------------------------------------------------------
Net realized gains from investment activities (335,308) -
--------------------------------------------------------------------------------------------
Total dividends and distributions paid to auction
preferred shareholders (1,745,671) (1,978,974)
--------------------------------------------------------------------------------------------
Net increase in net assets applicable to common
shareholders resulting from operations 15,588,774 29,836,075
--------------------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON
SHAREHOLDERS FROM:
Net investment income (17,327,825) (17,327,825)
--------------------------------------------------------------------------------------------
Net realized gains on investment activities (5,029,195) -
--------------------------------------------------------------------------------------------
Total dividends and distributions to common
shareholders (22,357,020) (17,327,825)
--------------------------------------------------------------------------------------------
Auction Preferred Shares offering costs and sales load (723,487) -
Net increase (decrease) in net asset applicable to
common shareholders (7,491,733) 12,508,250
--------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of year 325,060,118 312,551,868
--------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $1,619,771 and $3,342,323, respectively) $ 317,568,385 $ 325,060,118
============================================================================================
See accompanying notes to financial statements
--------------------------------------------------------------------------------
19
Insured Municipal Income Fund Inc.
Notes to Financial Statements
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Insured Municipal Income Fund Inc. (the "Fund") was incorporated in Maryland on
February 18, 1993, and is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, as a
closed-end diversified management investment company. The Fund's investment
objective is to achieve a high level of current income that is exempt from
federal income tax, consistent with the preservation of capital.
In the normal course of business the Fund enters into contracts that contain a
variety of representations that provide general indemnification. The Fund's
maximum exposure under these arrangements is unknown, as this would involve
future claims that may be made against the Fund that have not yet occurred.
However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires the Fund's
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates. The following is a summary of significant accounting policies:
VALUATION OF INVESTMENTS--The Fund calculates its net asset value based on the
current market value, where available, for its portfolio securities. The Fund
normally obtains market values for its securities from independent pricing
sources and broker-dealers. Independent pricing sources may use reported last
sale prices, current market quotations or valuations from computerized "matrix"
systems that derive values based on comparable securities. A matrix system
incorporates parameters such as security quality, maturity and coupon, and/or
research and evaluations by its staff, including review of broker-dealer market
price quotations, if available, in determining the valuation of the portfolio
securities. If a market value is not available from an independent pricing
source for a particular security, that security is valued at fair value as
determined in good faith by or under the direction of the Fund's Board of
Directors (the "Board"). The amortized cost method of valuation, which
approximates market value, generally is used to value short-term debt
instruments with sixty days or less remaining to maturity, unless the Board
determines that this does not represent fair value. Securities traded in the
over-the-counter ("OTC") market are valued at the last bid price available on
the valuation date prior to valuation.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income
is recorded on
--------------------------------------------------------------------------------
20
Insured Municipal Income Fund Inc.
Notes to Financial Statements
an accrual basis. Discounts are accreted and premiums are amortized as
adjustments to interest income and the identified cost of investments.
DERIVATIVES--The Fund may use options (both exchange traded and OTC) to attempt
to enhance income (which would be taxable income) and also may attempt to
"hedge" or manage the overall risk of its investments by using options, futures
contracts and interest rate protection transactions. The Fund may use
derivatives as a substitute for taking a position in an underlying security or
other asset and/or as part of a strategy designed to reduce exposure to other
risks, such as interest rate risk. The Fund also may use derivatives to add
leverage to the portfolio and/or to hedge against increases in the Fund's costs
associated with the dividend payments on preferred stock and auction preferred
stock of the Fund.
Derivatives are subject to a number of risks, including liquidity risk,
interest rate risk, credit risk and leverage risk. They also involve the risk
of improper valuation and imperfect correlations with the underlying asset rate
index.
DIVIDENDS AND DISTRIBUTIONS--The Fund intends to pay monthly dividends to common
shareholders at a level rate that over time will result in the distribution of
all of the Fund's net investment income remaining after the payment of
dividends on any outstanding auction preferred shares. The dividend rate on the
common stock is adjusted as necessary to reflect the earnings rate of the Fund.
Dividends and distributions to common shareholders are recorded on the
ex-dividend date. Dividends to auction preferred shareholders are accrued
daily. The amount of dividends from net investment income and distributions
from net realized capital gains is determined in accordance with federal income
tax regulations, which may differ from accounting principles generally accepted
in the United States. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their federal tax-basis treatment; temporary differences do not require
reclassification.
CONCENTRATION OF RISK
The Fund follows an investment policy of investing primarily in municipal
obligations of various states. Economic changes affecting those states and
certain of their public bodies and municipalities may affect the ability of the
issuers within those states to pay interest on, or repay principal of,
municipal obligations held by the Fund.
INVESTMENT ADVISOR AND ADMINISTRATOR
The Board has approved an investment advisory and administration contract
("Advisory Contract") with UBS Global Asset Management (US) Inc. ("UBS Global
AM"), under which UBS Global AM serves as investment advisor and administrator
of
--------------------------------------------------------------------------------
21
Insured Municipal Income Fund Inc.
Notes to Financial Statements
the Fund. UBS Global AM is an indirect wholly owned asset management subsidiary
of UBS AG, an internationally diversified organization with headquarters in
Zurich, Switzerland and operations in many areas of the financial services
industry. In accordance with the Advisory Contract, the Fund pays UBS Global AM
an investment advisory and administration fee, which is accrued weekly and paid
monthly, at the annual rate of 0.90% of the Fund's average weekly net assets.
UBS Global AM has agreed to waive 0.20% of the advisory and administration fee,
so that the Fund's effective fee is 0.70% of average weekly net assets. The
waiver will continue indefinitely unless the Board agrees to a change. At March
31, 2004, the Fund owed UBS Global AM $315,978 representing $405,741 for
investment advisory and administration fees less fee waivers of $89,763. For
the year ended March 31, 2004, UBS Global AM waived $867,058 in investment
advisory and administration fees from the Fund.
AUCTION PREFERRED SHARES
The Fund has issued 800 shares of Auction Preferred Shares Series A, 800 shares
of Auction Preferred Shares Series B, 800 shares of Auction Preferred Shares
Series C, 600 shares of Auction Preferred Shares Series D, 600 shares of
Auction Preferred Shares Series E and 600 shares of Auction Preferred Shares
Series F which are referred to herein collectively as the "APS." (Auction
Preferred Shares Series E and Auction Preferred Shares Series F were issued on
December 22, 2003). All shares of each series of APS have liquidation
preference of $50,000 per share plus an amount equal to accumulated but unpaid
dividends upon liquidation.
Dividends, which are cumulative, are generally reset every 7 days for all APS
Series. Dividend rates ranged from 0.65% to 2.25% for the year ended March 31,
2004.
The Fund is subject to certain restrictions relating to the APS. Failure to
comply with these restrictions could preclude the Fund from declaring any
distributions to common shareholders or repurchasing common shares and/or could
trigger the mandatory redemption of APS at liquidation value.
The APS are entitled to one vote per share and, unless otherwise required by
law, will vote with holders of common stock as a single class, except that the
APS will vote separately as a class on certain matters, as required by law. The
holders of the APS have the right to elect two directors of the Fund.
The redemption of the Fund's APS is outside of the control of the Fund because
it is redeemable upon the occurrence of an event that is not solely within the
control of the Fund.
--------------------------------------------------------------------------------
22
Insured Municipal Income Fund Inc.
Notes to Financial Statements
Offering costs of $123,487 and sales load of $600,000 were charged to
paid-in-capital of the Fund in connection with the offering of Auction
Preferred Shares during the year ended March 31, 2004.
FEDERAL TAX STATUS
For federal income tax purposes, at March 31, 2004, the components of net
unrealized appreciation of investments were as follows:
Gross appreciation (from investments having an excess value over cost) $14,172,807
-----------------------------------------------------------------------------------------
Gross depreciation (from investments having an excess of cost over value) (1,247,738)
-----------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures $12,925,069
=========================================================================================
For the year ended March 31, 2004, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $277,065,701 and
$166,703,900, respectively.
The Fund intends to distribute substantially all of its tax-exempt income and
any taxable income and to comply with the other requirements of the Internal
Revenue Code applicable to regulated investment companies. Accordingly, no
provision for federal income taxes is required. In addition, by distributing
during each calendar year substantially all of its net investment income,
realized capital gains and certain other amounts, if any, the Fund intends not
to be subject to a federal
excise tax.
The tax character of distributions paid during the fiscal years ended March 31,
2004 and March 31, 2003 were as follows:
DISTRIBUTIONS PAID FROM: 2004 2003
------------------------------------------------------------
Tax-exempt income $18,738,188 $19,306,799
------------------------------------------------------------
Net long-term capital gains 5,364,503 -
------------------------------------------------------------
Total distributions paid $24,102,691 $19,306,799
============================================================
At March 31, 2004, the components of accumulated earnings on a tax basis were
as follows:
Undistributed tax-exempt income $ 1,073,960
------------------------------------------------------------------
Undistributed long-term capital gains 1,612,334
------------------------------------------------------------------
Accumulated capital and other losses -
------------------------------------------------------------------
Unrealized appreciation of investments and futures 12,925,069
------------------------------------------------------------------
Total accumulated earnings $15,611,363
==================================================================
The differences between book-basis and tax-basis unrealized appreciation of
investments and futures is attributable to the realization for tax purposes of
unrealized gains/losses on certain securities that were marked-to-market and
premium amortization adjustments.
--------------------------------------------------------------------------------
23
Insured Municipal Income Fund Inc.
Notes to Financial Statements
To reflect reclassifications arising from permanent "book/tax" differences for
the year ended March 31, 2004, the Fund's undistributed net investment income
was decreased by $268,364 and accumulated net realized loss from investments
and futures was decreased by $268,364.
--------------------------------------------------------------------------------
24
Insured Municipal Income Fund Inc.
Financial Highlights
Selected data for a share of common stock outstanding throughout each year is
presented below:
FOR THE YEARS ENDED MARCH 31,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $ 15.76 $ 15.15 $ 15.30 $ 14.54 $ 15.58
---------------------------------------------------------------------------------------------------------------
Net investment income 0.84 0.97 1.01 1.04 1.04
---------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gains (losses) from investment activities 0.00* 0.58 (0.26) 0.79 (1.05)
---------------------------------------------------------------------------------------------------------------
Common share equivalent of dividends
and distributions paid to auction
preferred shareholders from:
---------------------------------------------------------------------------------------------------------------
Net investment income (0.07) (0.10) (0.17) (0.31) (0.26)
---------------------------------------------------------------------------------------------------------------
Net realized gains from investment
activities (0.02) - - - -
---------------------------------------------------------------------------------------------------------------
Total dividends and distributions paid to
auction preferred shareholders (0.09) (0.10) (0.17) (0.31) (0.26)
---------------------------------------------------------------------------------------------------------------
Net increase (decrease) from investment
operations 0.75 1.45 0.58 1.52 (0.27)
---------------------------------------------------------------------------------------------------------------
Dividends paid to common shareholders
from net investment income (0.84) (0.84) (0.73) (0.76) (0.77)
---------------------------------------------------------------------------------------------------------------
Distributions from net realized gains
from investment activities (0.24) - - - -
---------------------------------------------------------------------------------------------------------------
Auction Preferred Shares offering costs
and sales load (0.04) - - - -
---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 15.39 $ 15.76 $ 15.15 $ 15.30 $ 14.54
---------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF YEAR $ 14.48 $ 13.98 $ 13.42 $ 13.11 $ 12.00
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN(1) 11.75% 10.61% 8.04% 16.02% (10.49)%
---------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS
ATTRIBUTABLE TO COMMON SHARES:
Total expenses, net of waivers from advisor 1.35% 1.41% 1.42% 1.44% 1.44%
---------------------------------------------------------------------------------------------------------------
Total expenses, before waivers from
advisor 1.62% 1.60% 1.61% 1.63% 1.63%
---------------------------------------------------------------------------------------------------------------
Net investment income before
auction preferred shares dividends 5.42% 6.23% 6.57% 7.00% 7.05%
---------------------------------------------------------------------------------------------------------------
Auction preferred shares dividends 0.44% 0.61% 1.11% 2.10% 1.75%
---------------------------------------------------------------------------------------------------------------
Net investment income available to
common shareholders, net of
waivers from advisor 4.98% 5.62% 5.46% 4.90% 5.30%
---------------------------------------------------------------------------------------------------------------
Net investment income available to
common shareholders, before
waivers from advisor 4.71% 5.43% 5.27% 4.71% 5.11%
---------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
Net assets applicable to common
shareholders, end of year (000's) $ 317,568 $325,060 $ 312,552 $ 315,568 $299,876
---------------------------------------------------------------------------------------------------------------
Portfolio turnover 37% 24% 14% 2% 8%
---------------------------------------------------------------------------------------------------------------
Asset coverage per share of auction
preferred shares, end of year $ 125,612 $158,353 $ 154,184 $ 155,189 $149,959
===============================================================================================================
(1) Total investment return is calculated assuming a $10,000 purchase of common
stock at the current market price on the first day of each year reported
and a sale at the current market price on the last day of each year
reported, and assuming reinvestment of dividends and other distributions to
common shareholders at prices obtained under the Fund's Dividend
Reinvestment Plan.
* Represents less than $0.005.
--------------------------------------------------------------------------------
25
Insured Municipal Income Fund Inc.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Insured Municipal Income Fund Inc.
We have audited the accompanying statement of assets and liabilities of Insured
Municipal Income Fund Inc. (the "Fund"), including the portfolio of
investments, as of March 31, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets applicable to
common shareholders for each of the two years in the period then ended, and the
financial highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of investments owned as of March 31, 2004, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Insured Municipal Income Fund Inc. at March 31, 2004, the results of its
operations for the year then ended, the changes in its net assets applicable to
common shareholders for each of the two years in the period then ended, and the
financial highlights for each of the indicated periods, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
April 30, 2004
--------------------------------------------------------------------------------
26
Insured Municipal Income Fund Inc.
General Information (unaudited)
THE FUND
Insured Municipal Income Fund Inc. (the "Fund") is a diversified, closed-end
management investment company whose shares trade on the New York Stock Exchange
("NYSE").The Fund's investment objective is to achieve a high level of current
income that is exempt from federal income tax, consistent with the preservation
of capital. The Fund's investment advisor and administrator is UBS Global Asset
Management (US) Inc. ("UBS Global AM"), an indirect wholly owned asset
management subsidiary of UBS AG, which had approximately $53.1 billion in
assets under management as of April 30, 2004.
INVESTMENT POLICY CHANGE
In July 2003, the Fund's Board approved a change in investment policy. The Fund
may now invest in securities whose maturities are less than 10 years at the
time of purchase. Prior to this change, the Fund had a policy of investing
substantially all of its assets in municipal obligations having maturities in
excess of 10 years at the time of purchase.
PROXY VOTING POLICIES AND PROCEDURES
You may obtain a description of the Fund's proxy voting policies and
procedures, without charge, upon request by contacting the Fund directly at
1-800-647 1568 or online on the Fund's Web site www.ubs.com/ubsglobalam-proxy.
SHAREHOLDER INFORMATION
The Fund's NYSE trading symbol is "PIF." Comparative net asset value and market
price information about the Fund is published weekly in The Wall Street
Journal, The New York Times and Barron's, as well as in numerous other
publications.
DIVIDEND REINVESTMENT PLAN
The Fund's Board has established a Dividend Reinvestment Plan (the "Plan")
under which all common shareholders whose shares are registered in their own
names, or in the name of UBS Financial Services Inc. or its nominee, will have
all dividends and other distributions on their shares of common stock
automatically reinvested in additional shares of common stock, unless such
common shareholders elect to receive cash.Common shareholders who elect to hold
their shares in the name of another broker or nominee should contact such
broker or nominee to determine whether, or how, they may participate in the
Plan.The ability of such shareholders to participate in the Plan may change if
their shares are transferred into the name of another broker or nominee.
--------------------------------------------------------------------------------
27
Insured Municipal Income Fund Inc.
General Information (unaudited) (concluded)
DIVIDEND REINVESTMENT PLAN (CONCLUDED)
A common shareholder may elect not to participate in the Plan or may terminate
participation in the Plan at any time without penalty, and common shareholders
who have previously terminated participation in the Plan may rejoin it at any
time. Changes in elections must be made in writing to the Fund's transfer agent
and should include the shareholder's name and address as they appear on the
share certificate or in the transfer agent's records. An election to terminate
participation in the Plan, until such election is changed, will be deemed an
election by a common shareholder to take all subsequent distributions in cash.
An election will be effective only for distributions declared and having a
record date at least ten days after the date on which the election is received.
Additional shares of common stock acquired under the Plan will be purchased in
the open market, on the NYSE or otherwise, at prices that may be higher or
lower than the net asset value per share of the common stock at the time of the
purchase. The number of shares of common stock purchased with each dividend
will be equal to the result obtained by dividing the amount of the dividend
payable to a particular shareholder by the average price per share (including
applicable brokerage commissions) that the transfer agent was able to obtain in
the open market. The Fund will not issue any new shares of common stock in
connection with the Plan. There currently is no charge to participants for
reinvesting dividends or other distributions. The transfer agent's fees for
handling the reinvestment of distributions will be paid by the Fund. However,
each participant pays a pro rata share of brokerage commissions incurred with
respect to the transfer agent's open market purchases of common stock in
connection with the reinvestment of distributions. The automatic reinvestment
of dividends and other distributions in shares of common stock does not relieve
participants of any income tax that may be payable on such distributions.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan with respect to any
dividend or other distribution if notice of the change is sent to Plan
participants at least 30 days before the record date for such distribution. The
Plan also may be amended or terminated by the transfer agent by at least 30
days' written notice to all Plan participants. Additional information regarding
the Plan may be obtained from, and all correspondence concerning the Plan
should be directed to, the transfer agent at PFPC Inc., P.O. Box 43027,
Providence, Rhode Island 02940-3027. For further information regarding the
Plan, you may also contact the transfer agent directly at 1-800-331-1710.
--------------------------------------------------------------------------------
28
(This page has been left blank intentionally.)
--------------------------------------------------------------------------------
29
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
BOARD OF DIRECTORS & OFFICERS
The Fund is governed by a Board of Directors which oversees the Fund's
operations. Each Director serves until the next annual meeting of shareholders
or until his or her sucessor is elected and qualified or until he or she
resigns or is otherwise removed. Officers are appointed by the Directors and
serve at the pleasure of the Board. The table below shows, for each Director
and Officer, his or her name, address and age, the position held with the Fund,
the length of time served as a Director and Officer of the Fund, the Director's
or Officer's principal occupations during the last five years, the number of
funds in the UBS fund complex overseen by the Director or for which a person
served as an Officer, and other directorships held by the Director.
INTERESTED DIRECTOR
Term of
Office+ and
Name, Address, Position(s) Held Length of Principal Occupation(s)
and Age with Fund Time Served During Past 5 Years
---------------------------------------------------------------------------------------------------
Margo N. Alexander*++; Director Since 1995 Mrs. Alexander is retired. She was
57 an executive vice president of UBS
Financial Services Inc. (March 1984
to December 2002). She was chief
executive officer (from January
1995 to October 2000), a director
(from January 1995 to
September 2001) and chairman
(from March 1999 to
September 2001) of UBS Global
AM (formerly known as Mitchell
Hutchins Asset Management Inc.).
--------------------------------------------------------------------------------
30
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
Number of
Portfolios in Fund Complex Other Directorships
Overseen by Director Held by Director
--------------------------------------------------------------------------------
Mrs. Alexander is a director or trustee of None
16 investment companies (consisting of 35
portfolios) for which UBS Global AM or
one of its affiliates serves as investment
advisor, sub-advisor or manager.
--------------------------------------------------------------------------------
31
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
INDEPENDENT DIRECTORS
Term of
Office+ and
Name, Address, Position(s) Held Length of Principal Occupation(s)
and Age with Fund Time Served During Past 5 Years
-------------------------------------------------------------------------------------------------
Richard Q. Armstrong; 68 Director Since 1995 Mr. Armstrong is chairman and
c/o Willkie, Farr & principal of R.Q.A. Enterprises
Gallagher LLP (management consulting firm)
787 Seventh Avenue (since April 1991 and principal
New York, N.Y. occupation since March 1995).
10019-6099
David J. Beaubien; 69 Director Since 2001 Mr. Beaubien is retired (since
84 Doane Road 2003). He was chairman of
Ware, MA 01082 Yankee Environmental Systems,
Inc., a manufacturer of
meteorological measuring systems
(since 1991).
Richard R. Burt; 57 Director Since 1995 Mr. Burt is chairman of Diligence
1275 Pennsylvania Ave., LLC (international information and
N.W. security firm) and IEP Advisors
Washington, D.C. 20004 (international investments and
consulting firm).
Meyer Feldberg; 62 Director Since 1993 Mr. Feldberg is Dean and Professor
Columbia University of Management of the Graduate
101 Uris Hall School of Business, Columbia
New York, New York University (since 1989).
10027
--------------------------------------------------------------------------------
32
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
Number of
Portfolios in Fund Complex Other Directorships
Overseen by Director Held by Director
------------------------------------------------------------------------------------------
Mr. Armstrong is a director or trustee of 16 None
investment companies (consisting of 35
portfolios) for which UBS Global AM or
one of its affiliates serves as investment
advisor, sub-advisor or manager.
Mr. Beaubien is a director or trustee of 16 Mr. Beaubien is also a director of
investment companies (consisting of 35 IEC Electronics, Inc., a
portfolios) for which UBS Global AM or manufacturer of electronic
one of its affiliates serves as investment assemblies.
advisor, sub-advisor or manager.
Mr. Burt is a director or trustee of 16 Mr. Burt is also a director of
investment companies (consisting of 35 Hollinger International Inc.
portfolios) for which UBS Global AM or (publishing), HCL Technologies,
one of its affiliates serves as investment Ltd (software and information
advisor, sub-advisor or manager. technologies), The Central
European Fund, Inc., The
Germany Fund, Inc., IGT, Inc.
(provides technology to gaming
and wagering industry) and
chairman of Weirton Steel Corp.
(makes and finishes steel
products). He is also a director or
trustee of funds in the Scudder
Mutual Funds Family (consisting
of 47 portfolios).
Dean Feldberg is a director or trustee of 30 Dean Feldberg is also a director
investment companies (consisting of 49 of Primedia Inc. (publishing),
portfolios) for which UBS Global AM or Federated Department Stores,
one of its affiliates serves as investment Inc. (operator of department
advisor, sub-advisor or manager. stores), Revlon, Inc. (cosmetics),
Select Medical Inc. (healthcare
services) and SAPPI, Ltd.
(producer of paper).
--------------------------------------------------------------------------------
33
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
INDEPENDENT DIRECTORS (CONCLUDED)
Term of
Office+ and
Name, Address, Position(s) Held Length of Principal Occupation(s)
and Age with Fund Time Served During Past 5 Years
-------------------------------------------------------------------------------------------
Carl W. Schafer; 68 Director Since 1996 Mr. Schafer is president of the
66 Witherspoon Street Atlantic Foundation (charitable
#1100 foundation) (since 1990).
Princeton, NJ 08542
William D. White; 70 Director Since 2001 Mr. White is retired (since
P.O. Box 199 1994).
Upper Black Eddy, PA
18972
--------------------------------------------------------------------------------
34
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
Number of
Portfolios in Fund Complex Other Directorships
Overseen by Director Held by Director
----------------------------------------------------------------------------------------------
Mr. Schafer is a director or trustee of 16 Mr. Schafer is also a director of Labor
investment companies (consisting of 35 Ready, Inc. (temporary employment),
portfolios) for which UBS Global AM or Guardian Life Insurance Company Mutual
one of its affiliates serves as investment Funds (consisting of 25 portfolios), the
advisor, sub-advisor or manager. Harding, Loevner Funds (consisting of
three portfolios), E.I.I. Realty Securities
Trust (investment company) and Frontier
Oil Corporation.
Mr. White is a director or trustee of 16 None
investment companies (consisting of 35
portfolios) for which UBS Global AM or
one of its affiliates serves as investment
advisor, sub-advisor or manager.
--------------------------------------------------------------------------------
35
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
OFFICERS
Principal Occupation(s)
Term of During Past 5 Years;
Office+ and Number of Portfolios in
Name, Address, Position(s) Held Length of Fund Complex for which person
and Age with Fund Time Served serves as Officer
---------------------------------------------------------------------------------------------------
W. Douglas Beck*; 37 Vice President Since 2003 Mr. Beck is an executive director
and head of mutual fund product
management of UBS Global AM
(since 2002). From March 1998 to
November 2002, he held various
positions at Merrill Lynch, the most
recent being first vice president and
co-manager of the managed
solutions group. Mr. Beck is vice
president of 19 investment
companies (consisting of 76
portfolios) for which UBS Global
AM or one of its affiliates serves as
investment advisor, sub-advisor or
manager.
Thomas Disbrow*; 38 Vice President Since 2000 Mr. Disbrow is a director and a
and Assistant senior manager of the mutual fund
Treasurer finance department of UBS Global
AM. Prior to November 1999, he
was a vice president of
Zweig/Glaser Advisers. Mr. Disbrow
is a vice president and assistant
treasurer of 16 investment
companies (consisting of 35
portfolios) for which UBS Global
AM or one of its affiliates serves as
investment advisor, sub-advisor or
manager.
Amy R. Doberman*; Vice President Since 2000 Ms. Doberman is a managing
42 and Secretary director and general counsel of UBS
Global AM. From December 1997
through July 2000, she was general
counsel of Aeltus Investment
Management, Inc. Ms. Doberman
is vice president and assistant
secretary of five investment
companies (consisting of 44
portfolios) and vice president and
secretary of 16 investment
companies (consisting of 35
portfolios) for which UBS Global
AM or one of its affiliates serves as
investment advisor, sub-advisor or
manager.
--------------------------------------------------------------------------------
36
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
OFFICERS (CONTINUED)
Principal Occupation(s)
Term of During Past 5 Years;
Office+ and Number of Portfolios in
Name, Address, Position(s) Held Length of Fund Complex for which person
and Age with Fund Time Served serves as Officer
-----------------------------------------------------------------------------------------------------
Elbridge T. Gerry III*; Vice President Since 1996 Mr. Gerry is a managing director -
47 fixed income of UBS Global AM.
Mr. Gerry is a vice president of six
investment companies (consisting
of 12 portfolios) for which UBS
Global AM or one of its affiliates
serves as investment advisor,
sub-advisor or manager.
David M. Goldenberg*; Vice President Since 2002 Mr. Goldenberg is an executive
37 and Assistant director and deputy general
Secretary counsel of UBS Global AM. From
2000 to 2002 he was director, legal
affairs at Lazard Asset
Management. Mr. Goldenberg
served in various capacities,
including most recently as global
director of compliance for SSB Citi
Asset Management Group from
1996 to 2000. Mr. Goldenberg is a
vice president and secretary of five
investment companies (consisting
of 44 portfolios) and a vice
president and assistant secretary of
16 investment companies
(consisting of 35 portfolios) for
which UBS Global AM or one of its
affiliates serves as investment
advisor, sub-advisor or manager.
Paul H. Schubert*; 41 Vice President Since 1994 Mr. Schubert is an executive
and Treasurer director and head of the mutual
fund services of UBS Global AM.
Mr. Schubert is treasurer and
principal accounting officer of
three investment companies
(consisting of 41 portfolios), a vice
president and treasurer of 17
investment companies (consisting
of 36 portfolios), and treasurer and
chief financial officer of one
investment company (consisting of
two portfolios) for which UBS
Global AM or one of its affiliates
serves as investment advisor,
sub-advisor or manager.
--------------------------------------------------------------------------------
37
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
OFFICERS (CONCLUDED)
Principal Occupation(s)
Term of During Past 5 Years;
Office+ and Number of Portfolios in
Name, Address, Position(s) Held Length of Fund Complex for which person
and Age with Fund Time Served serves as Officer
---------------------------------------------------------------------------------------------------
Joseph A. Varnas*; 36 President Since 2003 Mr. Varnas is a managing director
(since March 2003), global head of
information technology and
operations (since March 2004) and
head of product management-
Americas (since November 2002) of
UBS Global AM. He was head of
technology of UBS Global AM from
November 2002 to March 2004.
From 2000 to 2001, he was
manager of product development
in Investment Consulting Services
at UBS Financial Services Inc. Mr.
Varnas was a senior analyst in the
Global Securities Research and
Economics Group at Merrill Lynch
from 1995 to 1999. Mr. Varnas is
president of 20 investment
companies (consisting of 77
portfolios) for which UBS Global
AM or one of its affiliates serves as
investment advisor, sub-advisor or
manager.
William Veronda*; 58 Vice President Since 2004 Mr. Veronda is an executive
director - fixed income of UBS
Global AM (since 1995).
Mr. Veronda is a vice president of
two investment companies
(consisting of two portfolios) for
which UBS Global AM or one of its
affiliates serves as investment
advisor, sub-advisor or manager.
--------------------------------------------------------------------------------
38
Insured Municipal Income Fund Inc.
Supplemental Information (unaudited)
Keith A. Weller*; 42 Vice President Since 1995 Mr. Weller is a director and senior
and Assistant associate general counsel of UBS
Secretary Global AM. Mr. Weller is a vice
president and assistant secretary of
16 investment companies
(consisting of 35 portfolios) for
which UBS Global AM or one of its
affiliates serves as investment
advisor, sub-advisor or manager.
------------------
+ Each Director holds office until he or she resigns or is otherwise removed.
Each director who has attained the age of seventy-two (72) years will be
subject to retirement on the last day of the month in which he or she
attains such age. Officers of the Fund are appointed by the Directors and
serve at the pleasure of the Board.
++ Mrs. Alexander is an "interested person" of the Fund as defined in the
Investment Company Act by virtue of her present or former positions with
UBS Global AM and/or its affiliates.
* This person's business address is 51 West 52nd Street, New York, New York
10019-6114.
--------------------------------------------------------------------------------
39
(This page has been left blank intentionally.)
--------------------------------------------------------------------------------
40
DIRECTORS
Margo N. Alexander Meyer Feldberg
Richard Q. Armstrong Carl W. Schafer
David J. Beaubien William D. White
Richard R. Burt
PRINCIPAL OFFICERS
Joseph A. Varnas Elbridge T. Gerry III
President Vice President
Amy R. Doberman W. Douglas Beck
Vice President and Secretary Vice President
Paul H. Schubert
Vice President and Treasurer
INVESTMENT ADVISOR AND
ADMINISTRATOR
UBS Global Asset Management (US) Inc.
51 West 52nd Street
New York, New York 10019-6114
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that from time to time the Fund may purchase shares of its
common stock in the open market at market prices.
This report is sent to the shareholders of the fund for their information. It
is not a prospectus, circular or representation intended for use in the
purchase or sale of shares of the Fund or of any securities mentioned in this
report.
(copyright) 2004 UBS Global Asset Management (US) Inc. All rights reserved.
----------------
[UBS LOGO] Presorted
Standard
UBS Global Asset Management (US) Inc. US Postage
51 West 52nd Street PAID
New York, NY 10019 Smithtown, NY
Permit 700
----------------
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions pursuant to Section 406 of
the Sarbanes-Oxley Act of 2002. (The registrant has designated the code of
ethics adopted pursuant to Sarbanes-Oxley as a "Code of Conduct" to lessen the
risk of confusion with its separate code of ethics adopted pursuant to Rule
17j-1 under the Investment Company Act of 1940, as amended.)
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors has determined that the following persons
serving on the registrant's Audit and Contract Review Committee are "audit
committee financial experts" as defined in item 3 of Form N-CSR: Richard Q.
Armstrong and Carl W. Schafer. Each of Mr. Armstrong and Mr. Schafer is
independent as defined in item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees:
For the fiscal years ended March 31, 2004 and March 31, 2003, the
aggregate Ernst & Young LLP (E&Y) audit fees for professional
services rendered to the registrant are shown in the table below:
2004 2003
---- ----
Insured Municipal Income Fund Inc. $44,650 $30,700
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 or engagements for those fiscal years (e.g., review of
portions of 2003 Form N-SAR filing) and registration statement
consents.
(b) Audit-Related Fees:
In each of the fiscal years ended March 31, 2004 and March 31,
2003, the aggregate audit-related fees billed by E&Y for services
rendered to the registrant that are reasonably related to the
performance of the audits of the financial statements, but not
reported as audit fees, are shown in the table below:
2004* 2003*
----- -----
Insured Municipal Income Fund Inc. $15,618 $24,175
* Includes amounts related to non-audit services prior to May 6,
2003 that would have been subject to pre-approval if the SEC rules
relating to the pre-approval of non-audit services had been in
effect at that time.
Fees included in the audit-related category are those associated
with (1) the reading and providing of comments on the 2003
semiannual financial statements, (2) review of portions of the
registrant's semiannual 2003 Form N-SAR filing, (3) review of the
consolidated profitability of UBS Global Asset Management (US)
Inc. ("UBS Global AM") to assist the directors in their annual
advisory/administration contract and service/distribution plan
reviews for calendar year 2003 and 2002 and (4) auction preferred
shares testing for the registrant's fiscal year ended 2004 and
2003.
There were no audit-related fees required to be approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the
fiscal years indicated above.
(c) Tax Fees:
In each of the fiscal years ended March 31, 2004 and March 31,
2003, the aggregate tax fees billed by E&Y for professional
services rendered to the registrant is shown in the table below:
2004* 2003*
----- -----
Insured Municipal Income Fund Inc. $8,300 $10,590
* Includes amounts related to non-audit services prior to May 6,
2003 that would have been subject to pre-approval if the SEC rules
relating to the pre-approval of non-audit services had been in
effect at that time.
Fees included in the tax fees category comprise all services
performed by professional staff in the independent accountant's
tax division except those services related to the audits. This
category comprises fees for review of tax compliance, tax
return preparation and excise tax calculations.
There were no tax fees required to be approved pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the
fiscal years indicated above.
(d) All Other Fees:
In each of the fiscal years ended March 31, 2004 and March 31,
2003, the aggregate fees billed by E&Y for products and services,
other than the services reported in Item 4(a)-(c) above, rendered
to the registrant is shown in the table below:
2004 2003
---- ----
Insured Municipal Income Fund Inc. $0 $0
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 Funds.
There were no "all other fees" required to be approved pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the
fiscal years indicated above.
(e) (1) Audit Committee Pre-Approval Policies and Procedures:
The registrant's Audit and Contract Review Committee ("audit
committee") has adopted an "Audit and Contract Review Committee
Charter (Amended and Restated as of February 11, 2004)" (the
"charter"). The charter contains the audit committee's
pre-
approval policies and procedures. Reproduced below is an excerpt
from the charter regarding pre-approval policies and procedures:
The [audit ]Committee shall:
...
2. Pre-approve (a) all audit and permissible non-audit
services(2) to be provided to the Fund and (b) all
permissible non-audit services to be provided by the Fund's
independent auditors to UBS Global [Asset Management (US)
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 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).
---------------
(2) 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 recognized by the Fund at the time of the engagement
to be non-audit services; and (iii) such services are
promptly brought to the attention of the Committee and
approved by the Committee (or its delegate(s)) prior to
the completion of the audit.
(e) (2) Services approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01
of Regulation S-X:
Audit-Related Fees:
There were no amounts that were approved by the audit committee
pursuant to the de minimis exception for the fiscal years ended
March 31, 2004 and March 31, 2003 on behalf of the registrant.
This includes amounts related to non-audit services prior to May
6, 2003 that would have been subject to pre-approval if the SEC
rules relating to the pre-approval of non-audit services had been
in effect at that time.
There were no amounts that were required to be approved by the
audit committee pursuant to the de minimis exception for the
fiscal years ended March 31, 2004 and March 31, 2003 on behalf of
the registrant's service providers that relate directly to the
operations and financial reporting of the registrant. This
includes amounts related to non-audit services prior to May 6,
2003 that would have been subject to pre-approval if the SEC rules
relating to the pre-approval of non-audit services had been in
effect at that time.
Tax Fees:
--------
There were no amounts that were approved by the audit committee
pursuant to the de minimis exception for the fiscal years ended
March 31, 2004 and March 31, 2003 on behalf of the registrant.
This includes amounts related to non-audit services prior to May
6, 2003 that would have been subject to pre-approval if the SEC
rules relating to the pre-approval of non-audit services had been
in effect at that time.
There were no amounts that were required to be approved by the
audit committee pursuant to the de minimis exception for the
fiscal years ended March 31, 2004 and March 31, 2003 on behalf of
the registrant's service providers that relate directly to the
operations and financial reporting of the registrant. This
includes amounts related to non-audit services prior to May 6,
2003 that would have been subject to pre-approval if the SEC rules
relating to the pre-approval of non-audit services had been in
effect at that time.
All Other Fees:
There were no amounts that were approved by the audit committee
pursuant to the de minimis exception for the fiscal years ended
March 31, 2004 and March 31, 2003 on behalf of the registrant.
This includes amounts related to non-audit services prior to May
6, 2003 that would have been subject to pre-approval if the SEC
rules relating to the pre-approval of non-audit services had been
in effect at that time.
There were no amounts that were required to be approved by the
audit committee pursuant to the de minimis exception for the
fiscal years ended March 31, 2004 and March 31, 2003 on behalf of
the registrant's service providers that relate directly to the
operations and financial reporting of the registrant. This
includes amounts related to non-audit services prior to May 6,
2003 that would have been subject to pre-approval if the SEC rules
relating to the pre-approval of non-audit services had been in
effect at that time.
(f) According to E&Y, for the fiscal year ended March 31, 2004, the
percentage of hours spent on the audit of the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons who are not full-time,
permanent employees of E&Y is as follows:
2004
----
Insured Municipal Income Fund Inc. 0%
(g) For the fiscal years ended March 31, 2004 and March 31, 2003, the
aggregate fees billed by E&Y of $3,193,093 and $2,839,418,
respectively, for non-audit services rendered on behalf of the
registrant ("covered"), its investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser) and
any entity controlling, controlled by, or under common control
with the adviser ("non-covered") that provides ongoing services to
the registrant for each of the last two fiscal years of the
registrant is shown in the table below:
2004 2003
---- ----
Covered Services $23,918 $34,765
Non-Covered Services 3,169,175 2,804,653
(h) The registrant's audit committee was not required to consider
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with
maintaining the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 6. [RESERVED BY SEC FOR FUTURE USE. ]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The registrant's Board of Directors believes that the voting of proxies on
securities held by the registrant is an important element of the overall
investment process. As such, the Board has delegated the responsibility to vote
such proxies to the registrant's advisor. Following is a summary of the proxy
voting policy of the advisor.
CORPORATE GOVERNANCE PHILOSOPHY, VOTING GUIDELINES AND POLICY SUMMARY
The proxy voting policy of UBS Global AM is based on its belief that voting
rights have economic value and must be treated accordingly. Generally, UBS
Global AM expects the boards of directors of companies issuing securities held
by its clients to act as stewards of the financial assets of the company, to
exercise good judgment and practice diligent oversight with the management of
the company. While there is no absolute set of rules that determine appropriate
corporate governance under all circumstances and no set of rules will guarantee
ethical behavior, there are certain benchmarks, which, if substantial progress
is made toward, give evidence of good corporate governance. UBS Global AM may
delegate to an independent proxy voting and research service the authority to
exercise the voting rights associated with certain client holdings. Any such
delegation shall be made with the direction that the votes be exercised in
accordance with UBS Global AM's proxy voting policy.
When UBS Global AM's view of a company's management is favorable, UBS Global AM
generally supports current management initiatives. When UBS Global AM's view is
that changes to the management structure would probably increase shareholder
value, UBS Global AM may not support existing management proposals. In general,
UBS Global AM (1) opposes proposals which act to entrench management; (2)
believes that boards should be independent of company management and composed of
persons with requisite skills, knowledge and experience; (3) opposes structures
which impose financial constraints on changes in control; (4) believes
remuneration should be commensurate with responsibilities and performance; and
(5) believes that appropriate steps should be taken to ensure the independence
of auditors.
UBS Global AM has implemented procedures designed to identify whether it has a
conflict of interests in voting a particular proxy proposal, which may arise as
a result of its or its affiliates' client relationships, marketing efforts or
banking, investment banking and broker/dealer activities. To address such
conflicts, UBS Global AM has imposed information barriers between it and its
affiliates who conduct banking, investment banking and broker/dealer activities
and has implemented procedures to prevent business, sales and marketing issues
from influencing our proxy votes. Whenever UBS Global AM is aware of a conflict
with respect to a particular proxy, its appropriate local corporate governance
committee is required to review and agree to the manner in which such proxy is
voted.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant's Board has established a Nominating Committee. The Nominating
Committee will consider nominees recommended by shareholders if a vacancy occurs
among those board members who are not "interested persons" as defined in Section
2(a)(19) of the Investment Company Act of 1940, as amended. In order to
recommend a nominee, a shareholder should send a letter to the chairperson of
the Nominating Committee, Mr. Meyer Feldberg, care of the Secretary of the
registrant at UBS Global Asset Management (US) Inc., 51 West 52nd Street, New
York, New York 10019-6114, and indicate on the envelope "Nominating Committee."
The shareholder's letter should state the nominee's name and should include the
nominee's resume or curriculum vitae, and must be accompanied by a written
consent of the individual to stand for election if nominated for the Board and
to serve if elected by shareholders.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company
Act of 1940, as amended) are effective based on their evaluation of
these controls and procedures as of a date within 90 days of the filing
date of this document.
(b) The registrant's principal executive officer and principal financial
officer are aware of no changes in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal half-year that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 11. EXHIBITS.
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(a) (1) Code of Ethics as required pursuant to Section 406 of the
Sarbanes-Oxley Act of 2002 (and designated by registrant as a "Code of
Conduct") is attached hereto as Exhibit EX-99.CODE ETH.
(a) (2) Certifications of principal executive officer and principal
financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 is attached hereto as Exhibit EX-99.CERT.
(b) Certifications of principal executive officer and principal financial
officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is
attached hereto as Exhibit EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Insured Municipal Income Fund Inc.
By: /s/ Joseph A. Varnas
--------------------
Joseph A. Varnas
President
Date: June 9, 2004
------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Joseph A. Varnas
--------------------
Joseph A. Varnas
President
Date: June 9, 2004
By: /s/ Paul H. Schubert
--------------------
Paul H. Schubert
Treasurer
Date: June 9, 2004
------------