-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EtMCLVi1SIuujIALkScY30jIHiUiJklH/0ryYYB1QDNCbAaRtQwnvh9V5pRcmFHT izgYI1MfxlAWnPBKdu1qaA== 0000930413-02-001983.txt : 20020607 0000930413-02-001983.hdr.sgml : 20020607 20020604124334 ACCESSION NUMBER: 0000930413-02-001983 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020604 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSURED MUNICIPAL INCOME FUND INC CENTRAL INDEX KEY: 0000897802 IRS NUMBER: 133702911 STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07528 FILM NUMBER: 02669741 BUSINESS ADDRESS: STREET 1: C/O BRINSON ADVISORS, INC. STREET 2: 51 WEST 52ND ST. CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2127133269 MAIL ADDRESS: STREET 1: C/O BRINSON ADVISORS, INC. STREET 2: 51 WEST 52ND ST. CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC DATE OF NAME CHANGE: 19930714 N-30D 1 c24244_n30d.txt [LOGO] UBS Global Asset Management INSURED MUNICIPAL INCOME FUND INC. ANNUAL REPORT MARCH 31, 2002 INSURED MUNICIPAL INCOME FUND INC. May 15, 2002 DEAR SHAREHOLDER, We present you with the annual report for Insured Municipal Income Fund Inc. for the fiscal year ended March 31, 2002. AN INTERVIEW WITH THE PORTFOLIO MANAGER Q. HOW DID THE FUND PERFORM DURING THE PERIOD RELATIVE TO ITS PEERS? A. For the fiscal year ended March 31, 2002, the Fund's net asset value advanced 3.84% and its market price increased 8.04%, outperforming its competitors, as measured by the Lipper Insured Municipal Debt Funds Median. The Lipper Median's net asset value and market price grew 2.56% and 5.54%, respectively. The Fund's relatively short average duration compared to its peers was the primary contributor to its outperformance of the benchmark. Q. WHAT ECONOMIC FACTORS AFFECTED FUND PERFORMANCE? A. The Federal Reserve's (the "Fed") unprecedented 11 fed funds rate cuts totaling 4.75% in 2001 depressed bond yields during the period. Optimism was the watchword at the start of 2002 as a series of positive economic indicators pointed toward a sustained economic recovery. The business activity index released in February by the Institute for Supply Management (ISM), a group of purchasing managers, rose above 50--signifying expansion for the first time in 18 months. Since then, the ISM index has posted readings of 55.6 in March and 53.9 post-period in April. The nation's economic output also grew rapidly during the first quarter at a rate of 5.8%, after a growth rate of 1.7% in the fourth quarter of 2001 and a contraction of 1.3% in the third quarter of 2001 during the depth of the recession. During this time, the Fed adopted a neutral bias from its former easing stance. However, unemployment remained stubbornly high, climbing to 6.0% post-period after reaching 5.7% in March. Additionally, the equity markets struggled again after a brief rally at the beginning of the year. A spate of companies questioned about their accounting and reporting practices did little to ease investors' fears. Q. WHAT MARKET FACTORS AFFECTED THE FUND DURING THE PERIOD? A. Undoubtedly, the Fed's easing had the greatest effect on performance. However, the municipal market outperformed the taxable fixed income market despite a glut of new supply issued during the first quarter of 2002. The Fed's change from an easing to a neutral bias in March 2002 also helped to flatten the Treasury yield curve late in the period. At its peak in September, the yield curve was 269 points--the steepest curve since 1993. Since then, the yield curve has fallen to 235 points in March 2002. - -------------------------------------------------------------------------------- 2 UBS Global Asset Management INSURED MUNICIPAL INCOME FUND INC. INSURED MUNICIPAL INCOME FUND INC. INVESTMENT GOAL: High level of current income exempt from federal income tax, consistent with preservation of capital PORTFOLIO MANAGER: William Veronda, UBS Global Asset Management (US) Inc.* COMMENCEMENT: June 8, 1993 NYSE SYMBOL: PIF DIVIDEND PAYMENTS: Monthly Q. WHICH STRATEGIES HELPED OR HINDERED FUND PERFORMANCE DURING THE PERIOD? A. The best performing point on the short end of the curve was at five years, with issues in this maturity range also giving us the leverage to reposition quickly when opportunities presented themselves. As a result, the weighted-average duration for the Fund was 3.92 years, although we have been increasing duration since late in the reporting period as the yield curve has flattened. We have combined our focus on the short end with a focus on the 15-year range, giving the portfolio a barbell-shaped structure. This strategy has allowed us to capture favorable returns at both ends of the spectrum. Security selection also helped performance during the period. The September 11 terrorist attacks knocked out bond broking giant Cantor Fitzgerald, which virtually halted liquidity. In the succeeding weeks, travel industry sectors such as airlines, airports and hotels were severely affected. We were underweighted in these sectors during this time. Q. TO ILLUSTRATE YOUR INVESTMENT STRATEGIES, PLEASE PROVIDE DETAILS FOR TWO OR THREE HOLDINGS THAT YOU BOUGHT OR SOLD DURING THIS REPORTING PERIOD. A. Because the Fund has capital loss tax carry-forwards, we had the flexibility to reposition the Fund and buy issues in the 15-year range without realizing gains. Most sales during the fiscal year were of two- to three-year prerefunded bonds, which are escrowed in government securities. In early March, we also sold a $3.53 million bond from the Philadelphia Water and Wastewater Revenue Authority with a 5.5% coupon due 6/15/15, because of a short call. The sale turned out to be advantageous as the yield curve began to flatten at around the time of the sale. During the period, we bought a $3 million Wisconsin State Transportation Revenue bond with a 5.5% coupon (due 7/1/15) and a $3.625 million general obligation bond issued by Snohomish County (Washington) School District at 5.25% (due 12/1/15).(1) * Effective April 8, 2002, Brinson Advisors, Inc. was renamed UBS Global Asset Management (US) Inc. Mr. Veronda assumed management responsibility of the Fund effective May 20, 2002. - -------------------------------------------------------------------------------- UBS Global Asset Management 3 INSURED MUNICIPAL INCOME FUND INC. Q. LASTLY, WHAT IS YOUR SHORT-TERM AND LONG-TERM OUTLOOK FOR THE MARKET? A. We anticipate staying relatively short to our benchmark and peers on average duration, while we continue to employ a barbell strategy. With good value at the 12- to 17-year range of the yield curve, we will also look for opportunities in this area. We will continue to stress the more premium-structured defensive bonds, as worries about credit quality will continue throughout the year. During the period, we were overweighted in the essential revenue, general obligation and education sectors. In the coming months, we will continue our overweight in at least two of these three sectors--essential revenue and education. We will monitor the general obligation area, where we anticipate weaker credit quality as states, such as California, and even cities, such as New York, see their credit ratings downgraded. We anticipate debt from North Carolina and Georgia to remain quality opportunities. (1.) Weightings represent percentages of net assets as of the dates indicated. As of March 31, 2002, Wisconsin State Transportation Authority and Snohomish County (Washington) School District represented 1.0% and 1.2% of net assets applicable to common shareholders, respectively. The Fund's portfolio is actively managed and its composition will vary over time. - -------------------------------------------------------------------------------- 4 UBS Global Asset Management INSURED MUNICIPAL INCOME FUND INC. PORTFOLIO REVIEW AVERAGE ANNUAL RETURNS, PERIODS ENDED 3/31/02 NET ASSET VALUE RETURNS FUND(1) LIPPER MEDIAN(3) - -------------------------------------------------------------------------------- 6 Months 0.51% -0.34% - -------------------------------------------------------------------------------- 1 Year 3.84 2.56 - -------------------------------------------------------------------------------- 5 Years 6.66 5.10 - -------------------------------------------------------------------------------- Since Inception 6/8/93 5.47 4.94 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MARKET PRICE RETURNS FUND(2) LIPPER MEDIAN(3) - -------------------------------------------------------------------------------- 6 Months 2.16% 0.95% - -------------------------------------------------------------------------------- 1 Year 8.04 5.54 - -------------------------------------------------------------------------------- 5 Years 8.34 6.39 - -------------------------------------------------------------------------------- Since Inception 6/8/93 4.82 5.95 - -------------------------------------------------------------------------------- (1) NAV return assumes, for illustration only, that dividends were reinvested at the net asset value on the ex-dividend dates. (2) Market price return assumes dividends were reinvested under the Dividend Reinvestment Plan. (3) Lipper Insured Municipal Debt Funds (Leveraged) Median. Inception returns for Lipper Median are shown as of nearest month-end of the Fund's inception: May 31, 1993. Past performance is no guarantee of future results. The Fund's share price and investment return will vary so that an investor's shares may be worth more or less than their original cost. NAV and market price returns for periods of less than one year are not annualized and do not include brokerage commissions. SHARE PRICE, DIVIDEND AND YIELD, 3/31/02 - -------------------------------------------------------------------------------- Net Asset Value $15.15 - -------------------------------------------------------------------------------- Market Price $13.42 - -------------------------------------------------------------------------------- March 2002 Dividend $0.065 - -------------------------------------------------------------------------------- 12-Mo. Dividend (ended 3/31/02) $0.730 - -------------------------------------------------------------------------------- Market Yield* 5.81% - -------------------------------------------------------------------------------- NAV Yield* 5.15% - -------------------------------------------------------------------------------- IPO Yield* 5.20% - -------------------------------------------------------------------------------- * Market yield is calculated by multiplying the March distribution by 12 and dividing by the month-end market price. NAV yield is calculated by multiplying the March distribution by 12 and dividing by the month-end net asset value. IPO yield is calculated by multiplying the March distribution by 12 and dividing by the initial public offering price. Prices and yields will vary. - -------------------------------------------------------------------------------- UBS Global Asset Management 5 INSURED MUNICIPAL INCOME FUND INC. PORTFOLIO STATISTICS CHARACTERISTICS* 3/31/02 9/30/01 - -------------------------------------------------------------------------------- Net Assets (mm) $312.6 $318.5 - -------------------------------------------------------------------------------- Weighted Average Maturity 12.27 yrs 12.96 yrs - -------------------------------------------------------------------------------- Weighted Average Duration 3.92 yrs 3.48 yrs - -------------------------------------------------------------------------------- Weighted Average Coupon 5.412% 5.77% - -------------------------------------------------------------------------------- AMT Paper 0% 0% - -------------------------------------------------------------------------------- Leverage** 32% 32% - -------------------------------------------------------------------------------- Callable/Maturing Within Five Years 30.5% 31.1% - -------------------------------------------------------------------------------- Callable/Maturing Beyond Five Years 69.5% 68.9% - -------------------------------------------------------------------------------- TOP TEN STATES* 3/31/02 9/30/01 - -------------------------------------------------------------------------------- Texas 27.2% Texas 25.4% - -------------------------------------------------------------------------------- Pennsylvania 14.9 Illinois 21.1 - -------------------------------------------------------------------------------- Illinois 13.2 Pennsylvania 16.0 - -------------------------------------------------------------------------------- Rhode Island 10.6 Rhode Island 10.5 - -------------------------------------------------------------------------------- Indiana 7.2 Nevada 8.2 - -------------------------------------------------------------------------------- Washington 6.9 Indiana 7.1 - -------------------------------------------------------------------------------- Kentucky 6.2 Kentucky 6.6 - -------------------------------------------------------------------------------- California 6.0 California 5.0 - -------------------------------------------------------------------------------- Alabama 4.8 Alabama 4.8 - -------------------------------------------------------------------------------- Louisiana 4.7 Louisiana 4.5 - -------------------------------------------------------------------------------- TOTAL 101.7% TOTAL 109.2% - -------------------------------------------------------------------------------- TOP FIVE SECTORS* 3/31/02 9/30/01 - -------------------------------------------------------------------------------- Water 30.9% Water 33.0% - -------------------------------------------------------------------------------- Power 29.0 Power 26.3 - -------------------------------------------------------------------------------- Hospital 22.9 Hospital 24.7 - -------------------------------------------------------------------------------- Sales Tax 14.8 Sales Tax 15.9 - -------------------------------------------------------------------------------- General Obligations 12.1 General Obligations 14.0 - -------------------------------------------------------------------------------- TOTAL 109.7% TOTAL 113.9% - -------------------------------------------------------------------------------- CREDIT QUALITY* 3/31/02 9/30/01 - -------------------------------------------------------------------------------- AAA/Aaa 140.3% 142.9% - -------------------------------------------------------------------------------- SP-1/MIG-1 5.8 1.5 - -------------------------------------------------------------------------------- A1/P1 0.9 0.6 - -------------------------------------------------------------------------------- Other Assets in Excess of Liabilities 1.0 2.1 - -------------------------------------------------------------------------------- Liquidation Value of Auction - -------------------------------------------------------------------------------- Preferred Shares (48.0) (47.1) - -------------------------------------------------------------------------------- TOTAL 100.0% 100.0% - -------------------------------------------------------------------------------- * Weightings represent percentages of net assets applicable to common shareholders as of the dates indicated. The Fund's portfolio is actively managed and its composition will vary over time. ** As a percentage of total net assets. - -------------------------------------------------------------------------------- 6 UBS Global Asset Management 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,(2) please contact your financial advisor or visit us at www.ubs.com. Sincerely, /s/ Brian M. Storms Brian M. Storms PRESIDENT Insured Municipal Income Fund Inc. PRESIDENT AND CHIEF OPERATING OFFICER UBS Global Asset Management (US) Inc. /s/ William Veronda William Veronda PORTFOLIO MANAGER Insured Municipal Income Fund Inc. EXECUTIVE DIRECTOR UBS Global Asset Management (US) Inc. This letter is intended to assist shareholders in understanding how the Fund performed during the fiscal year ended March 31, 2002, and reflects our views at the time of its writing. Of course, these views may change in response to changing circumstances. We encourage you to consult your financial advisor regarding your personal investment program. (2.) Mutual funds are sold by prospectus only. The prospectuses for the fund contains more complete information regarding risks, charges and expenses, and should be read carefully before investing. - -------------------------------------------------------------------------------- UBS Global Asset Management 7 INSURED MUNICIPAL INCOME FUND INC. PORTFOLIO OF INVESTMENTS -- MARCH 31, 2002
Principal Moody's S&P Amount Rating Rating Maturity Interest (000) (unaudited)(unaudited) Dates Rates Value - ---------------------------------------------------------------------------------------------------- LONG-TERM MUNICIPAL BONDS--140.31% ALABAMA--4.83% $ 1,590 Alabama Water Pollution Control Authority Revolving Fund Loan Series A (AMBAC Insured) Aaa AAA 08/15/17 6.750% $ 1,732,130 - ---------------------------------------------------------------------------------------------------- 5,400 Birmingham Baptist Medical Center-Special Care Facilities Financing Authority Revenue- Series A (MBIA Insured) Aaa AAA 08/15/23 5.500 5,402,484 8,000 Jefferson County Sewer Revenue-Series A (FGIC Insured) Aaa AAA 02/01/27 5.375 7,949,440 - ---------------------------------------------------------------------------------------------------- 15,084,054 - ---------------------------------------------------------------------------------------------------- CALIFORNIA--5.01% 4,000 California State Department of Water Resources Water Revenue Series W (FSA Insured) Aaa AAA 12/01/14 5.500 4,326,560 - ---------------------------------------------------------------------------------------------------- 30 California State General Obligation (FGIC Insured) Aaa AAA 11/01/12 7.000 33,525 - ---------------------------------------------------------------------------------------------------- 970 California State General Obligation (Pre-refunded with U.S. Government Securities to 11/01/04 @ 102) (FGIC Insured) Aaa AAA 11/01/12 7.000 1,090,299 - ---------------------------------------------------------------------------------------------------- 1,585 Contra Costa Water District Water Revenue Series F (FGIC Insured) Aaa AAA 10/01/13 6.000 1,640,855 - ---------------------------------------------------------------------------------------------------- 2,000 Long Beach Finance Authority Lease Revenue-Aquarium of the South Pacific (AMBAC Insured) Aaa AAA 11/01/15 5.500 2,120,720 - ---------------------------------------------------------------------------------------------------- 2,250 Los Angeles Wastewater System Revenue-Series A (MBIA Insured) Aaa AAA 06/01/20 5.700 2,292,368 - ---------------------------------------------------------------------------------------------------- 4,000 San Francisco City & County Airport Commission International Airport Second Series 27B (FGIC Insured) Aaa AAA 05/01/15 5.250 4,140,120 - ---------------------------------------------------------------------------------------------------- 15,644,447 - ---------------------------------------------------------------------------------------------------- COLORADO--1.26% 5,000 E-470 Public Highway Authority Revenue-Capital Appreciation Series B (MBIA Insured) Aaa AAA 09/01/07 5.330@ 3,940,700 - ----------------------------------------------------------------------------------------------------
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Principal Moody's S&P Amount Rating Rating Maturity Interest (000) (unaudited)(unaudited) Dates Rates Value - ---------------------------------------------------------------------------------------------------- LONG-TERM MUNICIPAL BONDS--(CONTINUED) DELAWARE--3.26% $10,000 Delaware State Economic Development Authority Pollution Control Revenue Delmarva Power-Series B (MBIA Insured) Aaa AAA 06/01/21 5.900% $10,195,200 - ---------------------------------------------------------------------------------------------------- DISTRICT OF COLUMBIA--1.38% 4,000 District of Columbia Hospital Revenue-Medlantic Healthcare-Series A (Escrowed to Maturity) (MBIA Insured) Aaa AAA 08/15/14 5.750 4,312,600 - ---------------------------------------------------------------------------------------------------- HAWAII--1.04% 3,000 Hawaii State General Obligation-Series CY (FSA Insured) Aaa AAA 02/01/14 5.750 3,246,480 - ---------------------------------------------------------------------------------------------------- ILLINOIS--13.21% 8,000 Central Lake County Joint Action Water Agency Interim Water Revenue (FGIC Insured) Aaa AAA 05/01/20 5.375 8,007,440 - ---------------------------------------------------------------------------------------------------- 8,400 Chicago O'Hare International Airport Revenue-Second Lien Series A (MBIA Insured) Aaa AAA 01/01/15 6.375 8,969,100 - ---------------------------------------------------------------------------------------------------- 3,000 Chicago O'Hare International Airport Revenue-Second Lien Series B (MBIA Insured) Aaa AAA 01/01/15 5.500 3,055,740 - ---------------------------------------------------------------------------------------------------- 1,000 Chicago Project & Refunding Series A (MBIA Insured) Aaa AAA 01/01/14 5.500 1,046,020 - ---------------------------------------------------------------------------------------------------- 4,600 Chicago Public Building Commission-Building Revenue Series A (Pre-refunded with U.S. Government Securities to 12/01/03 @ 102) (MBIA Insured) Aaa AAA 12/01/18 5.750 4,913,030 - ---------------------------------------------------------------------------------------------------- 4,000 Illinois Development Finance Authority Pollution Control Revenue-Commonwealth Edison Co. Project-Series D (AMBAC Insured) Aaa AAA 03/01/15 6.750 4,377,720 - ---------------------------------------------------------------------------------------------------- 4,500 Illinois Health Facilities Authority Revenue-Franciscan Sisters Health Care-Series C (Escrowed to Maturity) (MBIA Insured) Aaa AAA 09/01/18 5.750 4,849,155 - ---------------------------------------------------------------------------------------------------- 3,000 Kane McHenry Cook & De Kalb Counties-United School District No. 300 (MBIA Insured) Aaa AAA 12/01/15 5.500 3,127,740 - ----------------------------------------------------------------------------------------------------
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Principal Moody's S&P Amount Rating Rating Maturity Interest (000) (unaudited)(unaudited) Dates Rates Value - ---------------------------------------------------------------------------------------------------- LONG-TERM MUNICIPAL BONDS--(CONTINUED) ILLINOIS--(CONCLUDED) $ 2,000 Regional Transportation Authority-Series A (Pre-refunded with U.S. Government Securities to 06/01/03 @ 102) (FGIC Insured) Aaa AAA 06/01/23 5.850% $ 2,119,820 - ---------------------------------------------------------------------------------------------------- 750 Regional Transportation Authority-Series C (Pre-refunded with U.S. Government Securities to 06/01/04 @ 102) (FGIC Insured) Aaa AAA 06/01/25 7.100 828,007 - ---------------------------------------------------------------------------------------------------- 41,293,772 - ---------------------------------------------------------------------------------------------------- INDIANA--7.15% 2,500 Indiana Health Facilities Financing Authority Hospital Revenue Columbus Regional Hospital (FSA Insured) Aaa AAA 08/15/22 5.500 2,496,800 - ---------------------------------------------------------------------------------------------------- 7,835 Indianapolis Gas & Utilities Revenue-Series A (FGIC Insured) Aaa AAA 06/01/21 5.375 7,835,470 - ---------------------------------------------------------------------------------------------------- 12,000 Marion County Convention Center and Recreational Facilities Authority-Excise Tax Revenue-Lease Rental- Series A (AMBAC Insured) Aaa AAA 06/01/21 5.500 12,017,880 - ---------------------------------------------------------------------------------------------------- 22,350,150 - ---------------------------------------------------------------------------------------------------- IOWA--1.49% 4,625 Ames Hospital Revenue Mary Greeley Medical Center Project (AMBAC Insured) Aaa AAA 08/15/22 5.750 4,659,919 - ---------------------------------------------------------------------------------------------------- KENTUCKY--6.21% 17,530 Louisville & Jefferson County Metropolitan Sewer District Sewer & Drain System Series A (Pre-refunded with U.S. Government Securities 05/15/24 6.500 to 11/15/04 @ 102) to to (AMBAC Insured) Aaa AAA 05/15/25 6.750 19,399,792 - ---------------------------------------------------------------------------------------------------- LOUISIANA--4.56% 10,500 Louisiana Public Facilities Authority Revenue-Alton 05/15/11 5.750 Oschner Medical Foundation to to (MBIA Insured) Aaa AAA 05/15/17 6.000 10,545,750 - ----------------------------------------------------------------------------------------------------
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Principal Moody's S&P Amount Rating Rating Maturity Interest (000) (unaudited)(unaudited) Dates Rates Value - ---------------------------------------------------------------------------------------------------- LONG-TERM MUNICIPAL BONDS--(CONTINUED) LOUISIANA--(CONCLUDED) $ 1,710 Louisiana Public Facilities Authority Revenue Tulane University Series A-1 (FGIC Insured) Aaa AAA 02/15/18 5.750% $ 1,744,816 - ---------------------------------------------------------------------------------------------------- 1,870 Louisiana Public Facilities Authority Revenue Tulane University Series A-1 (Pre-refunded with U.S. Government Securities to 02/15/03 @ 102) (FGIC Insured) Aaa AAA 02/15/18 5.750 1,965,314 - ---------------------------------------------------------------------------------------------------- 14,255,880 - ---------------------------------------------------------------------------------------------------- MAINE--3.09% 4,785 Maine Health & Higher Educational Facilities Authority Revenue Series A (FSA Insured) Aaa AAA 07/01/23 5.500 4,899,601 - ---------------------------------------------------------------------------------------------------- 3,105 Maine Health & Higher Educational Facilities Authority Revenue-Series A (Escrowed to Maturity) (FSA Insured) Aaa AAA 07/01/23 5.500 3,108,384 1,500 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 1,656,975 - ---------------------------------------------------------------------------------------------------- 9,664,960 - ---------------------------------------------------------------------------------------------------- MICHIGAN--2.02% 6,255 Michigan State Housing Development Authority Rental Housing Revenue Series A (AMBAC Insured) Aaa AAA 04/01/23 5.900 6,318,301 - ---------------------------------------------------------------------------------------------------- NEVADA--4.42% 2,000 Clark County Sanitation District (FGIC Insured) Aaa AAA 07/01/11 5.700 2,086,880 - ---------------------------------------------------------------------------------------------------- 11,500 Washoe County Water Facilities Revenue Sierra Pacific Power Co. Project-Series A (MBIA Insured) Aaa AAA 06/01/23 5.900 11,738,625 - ---------------------------------------------------------------------------------------------------- 13,825,505 - ----------------------------------------------------------------------------------------------------
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Principal Moody's S&P Amount Rating Rating Maturity Interest (000) (unaudited)(unaudited) Dates Rates Value - ---------------------------------------------------------------------------------------------------- LONG-TERM MUNICIPAL BONDS--(CONTINUED) NEW HAMPSHIRE--1.61% $ 5,000 New Hampshire Higher Educational & Health Facilities Authority Revenue Lakes Region Hospital Association (FGIC Insured) Aaa AAA 01/01/17 5.500% $ 5,028,700 - ---------------------------------------------------------------------------------------------------- NEW JERSEY--1.75% 5,000 Salem County Industrial Pollution Control Financing Authority Revenue Public Service Electric & Gas Series D (MBIA Insured) Aaa AAA 10/01/29 6.550 5,459,650 - ---------------------------------------------------------------------------------------------------- NEW MEXICO--4.53% 8,850 Gallup Pollution Control Revenue-Plains Electric Generation (MBIA Insured) Aaa AAA 08/15/17 6.650 9,136,032 - ---------------------------------------------------------------------------------------------------- 4,700 Santa Fe Revenue (Pre-refunded with U.S. Government Securities to 06/01/04 @ 100) (AMBAC Insured) Aaa AAA 06/01/24 6.300 5,023,266 - ---------------------------------------------------------------------------------------------------- 14,159,298 - ---------------------------------------------------------------------------------------------------- NEW YORK--1.75% 2,000 Long Island Power Authority Electric System Revenue Series A (FSA Insured) Aaa AAA 12/01/22 5.125 1,958,660 - ---------------------------------------------------------------------------------------------------- 2,115 New York City General Obligation Series J (MBIA Insured) Aaa AAA 08/01/13 5.375 2,208,123 - ---------------------------------------------------------------------------------------------------- 1,250 New York State Thruway Authority-Highway & Bridge Trust Fund-Series C (FGIC Insured) Aaa AAA 04/01/10 5.250 1,311,138 - ---------------------------------------------------------------------------------------------------- 5,477,921 - ---------------------------------------------------------------------------------------------------- OHIO--1.70% 3,000 Cleveland Public Power System Revenue-First Mortgage-Series A (Pre-refunded with U.S. Government Securities to 11/15/04 @ 102) (MBIA Insured) Aaa AAA 11/15/24 7.000 3,351,420 - ---------------------------------------------------------------------------------------------------- 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 1,958,956 - ---------------------------------------------------------------------------------------------------- 5,310,376 - ----------------------------------------------------------------------------------------------------
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Principal Moody's S&P Amount Rating Rating Maturity Interest (000) (unaudited)(unaudited) Dates Rates Value - ---------------------------------------------------------------------------------------------------- LONG-TERM MUNICIPAL BONDS--(CONTINUED) PENNSYLVANIA--14.94% $ 6,130 North Wales Water Authority Series A (FGIC Insured) Aaa AAA 11/01/16 5.500% $ 6,275,526 - ---------------------------------------------------------------------------------------------------- 16,435 Pennsylvania Intergovernmental Cooperative Authority Special Tax Revenue Philadelphia Funding Program (Pre-refunded with U.S. Government Securities to 06/15/15 5.600 06/15/03 @ 100) to to (MBIA Insured) Aaa AAA 06/15/23 5.625 17,064,286 - ---------------------------------------------------------------------------------------------------- 2,675 Pennsylvania Intergovernmental Cooperative Authority Special Tax Revenue Philadelphia Funding Program (Pre-refunded with U.S. Government Securities to 06/15/05 @ 100) (FGIC Insured) Aaa AAA 06/15/14 7.000 2,956,811 - ---------------------------------------------------------------------------------------------------- 2,000 Philadelphia General 03/15/13 Obligation to (FSA Insured) Aaa AAA 03/15/14 5.250 2,064,920 - ---------------------------------------------------------------------------------------------------- 3,750 Philadelphia School District Series A (MBIA Insured) Aaa AAA 04/01/16 5.250 3,793,800 - ---------------------------------------------------------------------------------------------------- 5,885 Philadelphia Water & Wastewater Revenue (FSA Insured) Aaa AAA 06/15/15 5.500 6,000,640 - ---------------------------------------------------------------------------------------------------- 8,085 Philadelphia Water & Wastewater Revenue (Pre-refunded with U.S. Government Securities to 06/15/03 @ 102) (FSA Insured) Aaa AAA 06/15/15 5.500 8,540,186 - ---------------------------------------------------------------------------------------------------- 46,696,169 - ---------------------------------------------------------------------------------------------------- RHODE ISLAND--10.62% 14,000 Rhode Island Convention Center Authority-Series A (Pre-refunded with U.S. Government Securities to 05/15/03 @ 102) (AMBAC Insured) Aaa AAA 05/15/27 5.750 14,803,180 - ---------------------------------------------------------------------------------------------------- 10,000 Rhode Island Depositors Economic Protection Corp. Special Obligation-Series A (Escrowed to Maturity) (FSA Insured) Aaa AAA 08/01/14 5.750 10,974,100 - ----------------------------------------------------------------------------------------------------
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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% $ 7,405,230 - ---------------------------------------------------------------------------------------------------- 33,182,510 - ---------------------------------------------------------------------------------------------------- SOUTH CAROLINA--2.50% 2,625 Charleston County Hospital Facilities Revenue-Bon Secours Health System Project (Escrowed to Maturity) (FSA Insured) Aaa AAA 08/15/25 5.625 2,777,749 - ---------------------------------------------------------------------------------------------------- 5,000 South Carolina Public Service Authority Revenue-Series A (MBIA Insured) Aaa AAA 07/01/21 5.500 5,023,650 - ---------------------------------------------------------------------------------------------------- 7,801,399 - ---------------------------------------------------------------------------------------------------- TENNESSEE--1.61% 5,000 Sullivan County Health Educational & Housing Facilities Board Revenue-Holston Valley Health (MBIA Insured) Aaa AAA 02/15/20 5.750 5,043,100 - ---------------------------------------------------------------------------------------------------- TEXAS--26.89% 7,000 Austin Utilities System Revenue (AMBAC Insured) Aaa AAA 11/15/16 5.750 7,094,990 - ---------------------------------------------------------------------------------------------------- 7,945 Bexar Metropolitan Water District Waterworks System Revenue (MBIA Insured) Aaa AAA 05/01/22 5.875 8,171,035 - ---------------------------------------------------------------------------------------------------- 5,730 Bexar Metropolitan Water District Waterworks System Revenue (Pre-refunded with U.S. Government Securities to 05/01/05 @ 102) (MBIA Insured) Aaa AAA 05/01/22 5.875 6,234,756 - ---------------------------------------------------------------------------------------------------- 8,720 Colorado River Municipal Water District Water Revenue (AMBAC Insured) Aaa AAA 01/01/21 5.150 8,394,483 - ---------------------------------------------------------------------------------------------------- 3,000 Harris County Toll Road Sub-Lien (FGIC Insured) Aaa AAA 08/01/09 6.000 3,302,100 - ---------------------------------------------------------------------------------------------------- 6,000 Houston Water & Sewer System Revenue-Junior Lien-Series A (FSA Insured) Aaa AAA 12/01/15 5.500 6,218,100 - ---------------------------------------------------------------------------------------------------- 7,000 Houston Water & Sewer System Revenue-Junior Lien-Series C (FGIC Insured) Aaa AAA 12/01/22 5.250 6,878,200 - ----------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 14 UBS Global Asset Management INSURED MUNICIPAL INCOME FUND INC. PORTFOLIO OF INVESTMENTS -- (CONTINUED)
Principal Moody's S&P Amount Rating Rating Maturity Interest (000) (unaudited)(unaudited) Dates Rates Value - ---------------------------------------------------------------------------------------------------- LONG-TERM MUNICIPAL BONDS--(CONTINUED) TEXAS--(CONCLUDED) $ 3,620 Lower Colorado River Authority Revenue Series B (FSA Insured) Aaa AAA 05/15/13 6.000% $ 3,921,220 - ---------------------------------------------------------------------------------------------------- 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 10,806,000 - ---------------------------------------------------------------------------------------------------- 9,005 Matagorda County Navigation District No. 1 Revenue-Houston Light & Power-Series A (AMBAC Insured) Aaa AAA 03/01/27 6.700 9,215,357 - ---------------------------------------------------------------------------------------------------- 9,500 San Antonio Electric & Gas Revenue-Capital Appreciation-Series A (Escrowed to Maturity) (AMBAC Insured) Aaa AAA 02/01/05 3.280@ 8,560,070 - ---------------------------------------------------------------------------------------------------- 155 San Antonio Water Revenue (MBIA Insured) Aaa AAA 05/15/16 6.000 168,800 - ---------------------------------------------------------------------------------------------------- 720 San Antonio Water Revenue (Pre-refunded with U.S. Government Securities to 05/15/07 @ 100) (MBIA Insured) Aaa AAA 05/15/16 6.000 789,213 - ---------------------------------------------------------------------------------------------------- 4,170 Williamson County General Obligation (FSA Insured) Aaa AAA 02/15/17 5.500 4,284,675 - ---------------------------------------------------------------------------------------------------- 84,038,999 - ---------------------------------------------------------------------------------------------------- WASHINGTON--6.92% 3,220 Cowlitz County 12/01/15 School District to No. 458 Kelso Aaa NR 12/01/18 5.750 3,419,593 - ---------------------------------------------------------------------------------------------------- 2,175 Energy Northwest Electric Revenue-Project No. 1 Series A (MBIA Insured) Aaa AAA 07/01/15 5.750 2,311,655 - ---------------------------------------------------------------------------------------------------- 2,000 King County School District No. 403 Renton (FGIC Insured) Aaa AAA 12/01/14 5.250 2,031,440 - ---------------------------------------------------------------------------------------------------- 2,555 King County School District No. 411 Issaquah (FSA Insured) Aaa AAA 12/01/13 5.500 2,725,035 - ---------------------------------------------------------------------------------------------------- 2,170 King County Sewer Revenue (FGIC Insured) Aaa AAA 01/01/14 5.250 2,228,178 - ----------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- UBS Global Asset Management 15 INSURED MUNICIPAL INCOME FUND INC. PORTFOLIO OF INVESTMENTS -- (CONTINUED)
Principal Moody's S&P Amount Rating Rating Maturity Interest (000) (unaudited)(unaudited) Dates Rates Value - ---------------------------------------------------------------------------------------------------- LONG-TERM MUNICIPAL BONDS--(CONCLUDED) WASHINGTON--(CONCLUDED) $ 5,000 Metropolitan Seattle Sewer Revenue-Series W (Pre-refunded with U.S. Government Securities to 01/01/03 @ 102) (MBIA Insured) Aaa AAA 01/01/33 6.300% $ 5,256,200 - ---------------------------------------------------------------------------------------------------- 3,625 Snohomish County School District No. 015 Edmonds (FGIC Insured) Aaa AAA 12/01/15 5.250 3,664,694 - ---------------------------------------------------------------------------------------------------- 21,636,795 - ---------------------------------------------------------------------------------------------------- WEST VIRGINIA--3.99% 10,000 Marshall County Pollution Control Revenue - Ohio Power Project-Series D (MBIA Insured) Aaa AAA 04/01/22 5.900 10,180,900 - ---------------------------------------------------------------------------------------------------- 2,245 West Virginia Water Development Authority Water Development Revenue Loan Program II Series A-II (FSA Insured) Aaa AAA 11/01/29 5.750 2,302,584 - ---------------------------------------------------------------------------------------------------- 12,483,484 - ---------------------------------------------------------------------------------------------------- WISCONSIN--2.57% 1,500 Wisconsin Health & Educational Facilities Authority Revenue Bellin Memorial Hospital (AMBAC Insured) Aaa AAA 02/15/19 5.500 1,501,875 - ---------------------------------------------------------------------------------------------------- 3,500 Wisconsin State Health & Educational Facilities Authority Revenue-Hospital Sisters Health Services (MBIA Insured) Aaa AAA 06/01/18 5.375 3,479,175 - ---------------------------------------------------------------------------------------------------- 3,000 Wisconsin State Transportation Revenue-Series A (MBIA Insured) Aaa AAA 07/01/15 5.500 3,056,970 - ---------------------------------------------------------------------------------------------------- 8,038,020 - ---------------------------------------------------------------------------------------------------- Total Long-Term Municipal Bonds (cost--$419,565,637) 438,548,181 - ---------------------------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL NOTES--6.68% ALASKA--2.14% 6,700 Valdez Marine Terminal Revenue Exxon Pipeline Co. Project Series B VMIG-1 A-1+ 04/01/02 1.350* 6,700,000 - ---------------------------------------------------------------------------------------------------- ARIZONA--0.38% 1,200 Maricopa County Pollution Control Revenue-Arizona Public Service Co.-Series F P1 A-1+ 04/01/02 1.500* 1,200,000 - ----------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- 16 UBS Global Asset Management INSURED MUNICIPAL INCOME FUND INC. PORTFOLIO OF INVESTMENTS -- (CONTINUED)
Principal Moody's S&P Amount Rating Rating Maturity Interest (000) (unaudited)(unaudited) Dates Rates Value - ---------------------------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL NOTES--(CONTINUED) CALIFORNIA--1.02% $3,200 Los Angeles Water & Power Revenue-Subseries B-6 VMIG-1 A-1+ 04/01/02 1.450%* $ 3,200,000 - ---------------------------------------------------------------------------------------------------- FLORIDA--0.03% 100 Pinellas County Health Facilities Authority Revenue Pooled Hospital Loan Program (AMBAC Insured) VMIG-1 A-1+ 04/01/02 1.450* 100,000 - ---------------------------------------------------------------------------------------------------- LOUISIANA--0.13% 400 Louisiana Public Facilities Authority Revenue Industrial Development Kenner Hotel Ltd. P1 NR 04/01/02 1.350* 400,000 - ---------------------------------------------------------------------------------------------------- MICHIGAN--0.13% 400 University of Michigan-Medical Service Plan-Series AVMIG-1 A-1+ 04/01/02 1.450* 400,000 - ---------------------------------------------------------------------------------------------------- MISSOURI--0.67% 2,100 Missouri Development Financing Board-Cultural Facilities Revenue-Nelson Gallery Foundation-Series B (MBIA Insured) VMIG-1 A-1+ 04/01/02 1.500* 2,100,000 - ---------------------------------------------------------------------------------------------------- NEW YORK--1.60% 5,000 New York City Transitional Financing Authority Revenue Future Tax Secured-Series C VMIG-1 A-1+ 04/01/02 1.400* 5,000,000 - ---------------------------------------------------------------------------------------------------- TENNESSEE--0.19% 500 Metropolitan Nashville Airport Authority-Special Facilities Revenue-American Airlines Project-Series A NR A-1+ 04/01/02 1.400* 500,000 - ---------------------------------------------------------------------------------------------------- 100 Metropolitan Nashville Airport Authority-Special Facilities Revenue-American Airlines Project-Series B NR A-1+ 04/01/02 1.400* 100,000 - ---------------------------------------------------------------------------------------------------- 600,000 - ---------------------------------------------------------------------------------------------------- TEXAS--0.29% 100 Guadalupe-Blanco River Authority-Pollution Control Revenue-Central Power & Light Co. Project VMIG-1 A-1+ 04/01/02 1.450* 100,000 - ----------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- UBS Global Asset Management 17 INSURED MUNICIPAL INCOME FUND INC. PORTFOLIO OF INVESTMENTS -- (CONCLUDED)
Principal Moody's S&P Amount Rating Rating Maturity Interest (000) (unaudited)(unaudited) Dates Rates Value - ---------------------------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL NOTES--(CONCLUDED) TEXAS--(CONCLUDED) $ 690 Harris County Health Facilities Development Corp. Revenue St. Luke's Episcopal Hospital Series B NR A-1+ 04/01/02 1.500%* $ 690,000 - ---------------------------------------------------------------------------------------------------- 100 Harris County Industrial Development Corp. Pollution Control Revenue VMIG-1 A-1+ 04/01/02 1.450* 100,000 - ---------------------------------------------------------------------------------------------------- 890,000 - ---------------------------------------------------------------------------------------------------- WYOMING--0.10% 300 Uinta County Pollution Control Revenue-Amoco Project VMIG-1 A-1+ 04/01/02 1.350* 300,000 - ---------------------------------------------------------------------------------------------------- Total Short-Term Municipal Notes (cost--$20,890,000) 20,890,000 - ---------------------------------------------------------------------------------------------------- Total Investments (cost--$440,455,637)--146.99% 459,438,181 - ---------------------------------------------------------------------------------------------------- Other assets in excess of liabilities--1.00% 3,113,687 - ---------------------------------------------------------------------------------------------------- Liquidation value of Auction Preferred Shares--(47.99%) (150,000,000) - ---------------------------------------------------------------------------------------------------- Net Assets applicable to common shareholders--100.00% $312,551,868 - ----------------------------------------------------------------------------------------------------
* 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, 2002. @ Interest rates shown reflect yield to maturity at purchase date for zero coupon bonds. NR -- Not Rated. AMBAC -- American Municipal Bond Assurance Corporation FGIC -- Financial Guaranty Insurance Company FSA -- Financial Security Assurance Incorporated MBIA -- Municipal Bond Investors Assurance See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 18 UBS Global Asset Management INSURED MUNICIPAL INCOME FUND INC. STATEMENT OF ASSETS AND LIABILITIES -- MARCH 31, 2002 ASSETS: Investments in securities, at value (cost--$440,455,637) $459,438,181 - -------------------------------------------------------------------------------- Cash 11,936 - -------------------------------------------------------------------------------- Interest receivable 7,004,019 - -------------------------------------------------------------------------------- Other assets 29,353 - -------------------------------------------------------------------------------- Total assets 466,483,489 - -------------------------------------------------------------------------------- LIABILITIES: Payable for investments purchased 3,168,640 - -------------------------------------------------------------------------------- Payable to investment advisor and adminstrator 306,743 - -------------------------------------------------------------------------------- Dividends payable to preferred shareholders 82,808 - -------------------------------------------------------------------------------- Accrued expenses and other liabilities 373,430 - -------------------------------------------------------------------------------- Total liabilities 3,931,621 - -------------------------------------------------------------------------------- Auction Preferred Shares Series A, B, C, & D--3,000 non-participating shares authorized, issued and outstanding; $0.001 par value; $50,000 liquidation value per share 150,000,000 - -------------------------------------------------------------------------------- Net assets applicable to common shareholders $312,551,868 - -------------------------------------------------------------------------------- NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS: Common Stock--$0.001 par value; 199,997,000 shares authorized; 20,628,363 shares issued and outstanding 302,699,678 - -------------------------------------------------------------------------------- Undistributed net investment income 2,641,923 - -------------------------------------------------------------------------------- Accumulated net realized loss from investment transactions (ll,772,277) Net unrealized appreciation of investments 18,982,544 - -------------------------------------------------------------------------------- Net assets applicable to common shareholders $312,551,868 - -------------------------------------------------------------------------------- Net asset value per common share ($312,551,868 applicable to 20,628,363 common shares outstanding) $15.15 - -------------------------------------------------------------------------------- See accompanying notes to financial statements. - -------------------------------------------------------------------------------- UBS Global Asset Management 19 INSURED MUNICIPAL INCOME FUND INC. STATEMENT OF OPERATIONS For the Year Ended March 31, 2002 - -------------------------------------------------------------------------------- INVESTMENT INCOME: Interest $25,320,802 - -------------------------------------------------------------------------------- EXPENSES: Investment advisory and administration 4,198,972 - -------------------------------------------------------------------------------- Auction Preferred Shares expenses 418,275 - -------------------------------------------------------------------------------- Custody and accounting 279,935 - -------------------------------------------------------------------------------- Professional fees 72,705 - -------------------------------------------------------------------------------- Reports and notices to shareholders 61,217 - -------------------------------------------------------------------------------- Transfer agency fees 22,139 - -------------------------------------------------------------------------------- Directors' fees 8,597 - -------------------------------------------------------------------------------- Other expenses 36,769 - -------------------------------------------------------------------------------- 5,098,609 - -------------------------------------------------------------------------------- Less: Fee waivers from advisor (583,198) - -------------------------------------------------------------------------------- Net expenses 4,515,411 - -------------------------------------------------------------------------------- NET INVESTMENT INCOME 20,805,391 - -------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES: Net realized gain from investment transactions 2,513,664 - -------------------------------------------------------------------------------- Net change in unrealized appreciation/depreciation of investments (7,763,702) - -------------------------------------------------------------------------------- NET REALIZED AND UNREALIZED LOSS FROM INVESTMENT ACTIVITIES (5,250,038) - -------------------------------------------------------------------------------- DIVIDENDS TO PREFERRED SHAREHOLDERS FROM NET INVESTMENT INCOME (3,512,387) - -------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS $12,042,966 - -------------------------------------------------------------------------------- See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 20 UBS Global Asset Management INSURED MUNICIPAL INCOME FUND INC. STATEMENT OF CHANGES IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS For the Years Ended March 31, --------------------------- 2002 2001 - -------------------------------------------------------------------------------- FROM OPERATIONS: Net investment income $20,805,391 $21,386,612 - -------------------------------------------------------------------------------- Net realized gains from investment transactions 2,513,664 501,319 - -------------------------------------------------------------------------------- Net change in unrealized appreciation/depreciation of investments (7,763,702) 15,817,202 - -------------------------------------------------------------------------------- Dividends to preferred shareholders from net investment income (3,512,387) (6,418,525) - -------------------------------------------------------------------------------- Net increase in net assets applicable to common shareholders resulting from operations 12,042,966 31,286,608 - -------------------------------------------------------------------------------- DIVIDENDS TO COMMON SHAREHOLDERS FROM: Net investment income (15,058,705) (15,595,048) - -------------------------------------------------------------------------------- Net increase (decrease) in net assets (3,015,739) 15,691,560 - -------------------------------------------------------------------------------- NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS: Beginning of year 315,567,607 299,876,047 - -------------------------------------------------------------------------------- End of year (including undistributed net investment income of $2,641,923 and $431,123, respectively) $312,551,868 $315,567,607 - -------------------------------------------------------------------------------- See accompanying notes to financial statements. - -------------------------------------------------------------------------------- UBS Global Asset Management 21 INSURED MUNICIPAL INCOME FUND INC. STATEMENT OF CASH FLOWS For the Year Ended March 31, 2002 - -------------------------------------------------------------------------------- CASH FLOWS PROVIDED FROM (USED FOR) OPERATING ACTIVITIES: Interest received $ 25,588,960 - -------------------------------------------------------------------------------- Expenses paid (net of fee waivers) (4,482,265) - -------------------------------------------------------------------------------- Dividends paid from net investment income to preferred shareholders (3,644,513) - -------------------------------------------------------------------------------- Purchase of short-term portfolio investments, net (12,790,000) - -------------------------------------------------------------------------------- Purchase of long-term portfolio investments (61,930,708) - -------------------------------------------------------------------------------- Sale of long-term portfolio investments 72,271,348 - -------------------------------------------------------------------------------- Net cash provided from operating activities 15,012,822 - -------------------------------------------------------------------------------- CASH FLOWS USED FOR FINANCING ACTIVITIES: Dividends paid from net investment income to common shareholders (15,058,705) - -------------------------------------------------------------------------------- Net decrease in cash (45,883) - -------------------------------------------------------------------------------- Cash at beginning of year 57,819 - -------------------------------------------------------------------------------- Cash at end of year $ 11,936 - -------------------------------------------------------------------------------- RECONCILIATION OF NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS TO NET CASH PROVIDED FROM OPERATING ACTIVITIES: Net increase in net assets applicable to common shareholders resulting from operations $ 12,042,966 - -------------------------------------------------------------------------------- Increase in investments, at value (505,026) - -------------------------------------------------------------------------------- Decrease in interest receivable 405,222 - -------------------------------------------------------------------------------- Increase in other assets (29,353) - -------------------------------------------------------------------------------- Increase in payable for investments purchased 3,168,640 - -------------------------------------------------------------------------------- Increase in payable to investment advisor and administrator 389 - -------------------------------------------------------------------------------- Decrease in dividends payable to preferred shareholders (132,126) - -------------------------------------------------------------------------------- Increase in accrued expenses and other liabilities 62,110 - -------------------------------------------------------------------------------- Total adjustments 2,969,856 - -------------------------------------------------------------------------------- Net cash provided from operating activities $ 15,012,822 - -------------------------------------------------------------------------------- See accompanying notes to financial statements. - -------------------------------------------------------------------------------- 22 UBS Global Asset Management INSURED MUNICIPAL INCOME FUND INC. NOTES TO FINANCIAL STATEMENTS ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Insured Municipal Income Fund Inc. (the "Fund") was incorporated in Maryland on February 18, 1993, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, as a closed-end diversified management investment company. The Fund's investment objective is to achieve a high level of current income that is exempt from federal income tax, consistent with the preservation of capital. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires Fund management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies: VALUATION OF INVESTMENTS--The Fund calculates its net asset value based on the current market value, where available, for its portfolio securities. The Fund normally obtains market values for its securities from independent pricing sources and broker-dealers. Independent pricing sources may use reported last sale prices, current market quotations or valuations from computerized "matrix" systems that derive values based on comparable securities. If a market value is not available from an independent pricing source for a particular security, that security is valued at fair value as determined in good faith by or under the direction of the Fund's board of directors (the "Board"). The amortized cost method of valuation, which approximates market value, generally is used to value short-term debt instruments with sixty days or less remaining to maturity, unless the Board determines that this does not represent fair value. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are recorded on the trade date. Realized gains and losses from investment transactions are calculated using the identified cost method. Interest income is recorded on an accrual basis. Discounts are accreted and premiums are amortized as adjustments to interest income and the identified cost of investments. DIVIDENDS AND DISTRIBUTIONS--The Fund intends to pay monthly dividends to common shareholders at a level rate that over time will result in the distribution of all of the Fund's net investment income remaining after the payment of dividends on any outstanding preferred shares. Dividends and distributions to common shareholders are recorded on the ex-dividend date. Dividends to 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. - -------------------------------------------------------------------------------- UBS Global Asset Management 23 INSURED MUNICIPAL INCOME FUND INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) CHANGE IN ACCOUNTING PRINCIPLE In July 2001, a Securities and Exchange Commission staff announcement, Emerging Issues Task Force Discussion ("EITF D") - 98, CLASSIFICATION AND MEASUREMENT OF REDEEMABLE SECURITIES, was issued providing new guidance related to the presentation of preferred shares in financial statements. EITF D-98 is required to be applied beginning with fiscal quarters ending after December 15, 2001 on a retroactive basis, by restating the prior year's financial statements. In accordance with the announcement, the Fund has presented its auction preferred shares outside of net assets and has presented dividends to preferred shareholders on such auction preferred shares in the net change in net assets attributable to common shareholders resulting from operations for all periods presented. Therefore, beginning net assets attributable to common shareholders have been restated and dividend activity related to preferred shares has been reclassified from the capital activity in the statements of changes in net assets and the financial highlights to the operating activity. The application of EITF D-98 related entirely to presentation and had no impact on net asset value or the allocation of net income or capital gains or losses to common shareholders. 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", formerly known as Brinson Advisors, Inc.) under which UBS Global AM serves as investment advisor and administrator of the Fund. 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. For the year ended March 31, 2002, UBSGlobal AM voluntarily waived $583,198 in investment advisory and administration fees from the Fund. COMMON STOCK There are 199,997,000 shares of $0.001 par value common stock authorized and 20,628,363 common shares outstanding at March 31, 2002. AUCTION PREFERRED SHARES The Fund has issued 800 shares of Auction Preferred Shares Series A, 800 shares of Auction Preferred Shares Series B, 800 shares of Auction Preferred Shares Series C and 600 shares of Auction Preferred Shares Series D, which are referred to herein collectively as the "APS." All shares of each series of APS have a liquidation preference of $50,000 per share plus an amount equal to accumulated but unpaid dividends upon liquidation. - -------------------------------------------------------------------------------- 24 UBS Global Asset Management INSURED MUNICIPAL INCOME FUND INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUCTION PREFERRED SHARES (CONCLUDED) Dividends, which are cumulative, are generally reset every 7 days for APS Series A, 28 days for APS Series B, 90 days for APS Series C and 7 days for APS Series D. Dividend rates ranged from 1.200% to 4.250% for the year ended March 31, 2002. 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 preferred shares will vote separately as a class on certain matters, as required by law. The holders of the preferred shares have the right to elect two directors of the Fund. FEDERAL TAX STATUS For federal income tax purposes, at March 31, 2002, the components of net unrealized appreciation of investments were as follows: Gross appreciation (from investments having an excess value over cost) ..................................................... $9,056,520 Gross depreciation (from investments having an excess of cost over value) .................................................... (733,442) ----------- Net unrealized appreciation of investments ...................... $8,323,078 =========== For the year ended March 31, 2002, total aggregate purchases and sales of portfolio securities, excluding short-term securities, were $65,099,348 and $72,271,348, 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, 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, 2002 and March 31, 2001 were as follows: Distributions paid from: 2002 2001 ----------- ----------- Tax-exempt income ................................. $18,703,218 $22,126,192 ----------- ----------- Total distributions paid differ from the statement of changes in net assets because for tax purposes dividends are recognized when actually paid. - -------------------------------------------------------------------------------- UBS Global Asset Management 25 INSURED MUNICIPAL INCOME FUND INC. NOTES TO FINANCIAL STATEMENTS (CONCLUDED) FEDERAL TAX STATUS (CONCLUDED) At March 31, 2002, the components of accumulated earnings on a tax basis were as follows: Undistributed tax-exempt income .................. $ 2,306,923 ----------- Accumulated earnings ............................. 2,306,923 Accumulated capital and other losses ............. (695,006) Unrealized appreciation .......................... 8,323,078 ----------- Total accumulated earnings ....................... $ 9,934,995 =========== The differences between book-basis and tax-basis unrealized appreciation is attributable to the realization for tax purposes of unrealized gains/losses on certain securities that were marked-to-market. At March 31, 2002, the Fund had a net capital loss carryforward of $695,006 which is available as a reduction, to the extent provided in the regulations, of future net realized capital gains and will expire on March 31, 2003. To the extent that such losses are used to offset future capital gains, such gains will not be distributed. To reflect reclassifications arising from permanent "book/tax" differences for the year ended March 31, 2002, the Fund's undistributed net investment income was decreased by $23,499 and accumulated net realized losses were decreased by $23,499. - -------------------------------------------------------------------------------- 26 UBS Global Asset Management 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, - -------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 - -------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $ 15.30 $ 14.54 $ 15.58 $ 15.40 $ 14.10 - -------------------------------------------------------------------------------- Net investment income 1.01 1.04 1.04 1.02 1.03 - -------------------------------------------------------------------------------- Net realized and unrealized gains (losses) from investment transactions (0.26) 0.79 (1.05) 0.18 1.30 - -------------------------------------------------------------------------------- Common share equivalent of dividends paid to preferred shareholders from net investment income (0.17) (0.31) (0.26) (0.25) (0.26) - -------------------------------------------------------------------------------- Net increase (decrease) from operations 0.58 1.52 (0.27) 0.95 2.07 - -------------------------------------------------------------------------------- Dividends paid to common shareholders from net investment income (0.73) (0.76) (0.77) (0.77) (0.77) - -------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $ 15.15 $ 15.30 $ 14.54 $ 15.58 $ 15.40 - -------------------------------------------------------------------------------- MARKET VALUE, END OF YEAR $ 13.42 $ 13.11 $ 12.00 $ 14.25 $ 13.56 - -------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN (1) 8.04% 16.02% (10.49)% 10.96% 19.70% RATIO TO AVERAGE NET ASSETS ATTRIBUTABLE TO COMMON SHARES: - -------------------------------------------------------------------------------- Total expenses, net of waivers from advisor 1.42% 1.44% 1.44% 1.46% 1.49% - -------------------------------------------------------------------------------- Total expenses, before waivers from advisor 1.61% 1.63% 1.63% 1.65% 1.74% - -------------------------------------------------------------------------------- Net investment income before preferred stock dividends 6.57% 7.00% 7.05% 6.58% 6.84% - -------------------------------------------------------------------------------- Preferred stock dividends 1.11% 2.10% 1.75% 1.60% 1.75% - -------------------------------------------------------------------------------- Net investment income available to common shareholders, net of waivers from advisor 5.46% 4.90% 5.30% 4.98% 5.09% - -------------------------------------------------------------------------------- Net investment income available to common shareholders, before waivers from advisor 5.27% 4.71% 5.11% 4.79% 4.84% - -------------------------------------------------------------------------------- SUPPLEMENTAL DATA: - -------------------------------------------------------------------------------- Net assets applicable to common shareholders, end of year (000's) $312,552 $315,568 $299,876 $321,361 $317,761 - -------------------------------------------------------------------------------- Portfolio turnover rate 14% 2% 8% 5% 6% - -------------------------------------------------------------------------------- Asset coverage per share of preferred stock, end of year $154,184 $155,189 $149,959 $157,120 $155,920 - -------------------------------------------------------------------------------- (1) Total investment return is calculated assuming a purchase of common stock at the current market price on the first day of each year reported and a sale at the current market price on the last day of each year reported, and assuming reinvestment of dividends and other distributions to common shareholders at prices obtained under the Fund's Dividend Reinvestment Plan. Total investment return does not reflect brokerage commissions. - -------------------------------------------------------------------------------- UBS Global Asset Management 27 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, 2002, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with 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, 2002, 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, 2002, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States. As discussed in the Notes to Financial Statements, in 2002 the Fund changed its method of accounting for its auction preferred shares and its dividends to preferred shareholders on such auction preferred shares. /s/ Ernst & Young LLP New York, New York May 3, 2002 - -------------------------------------------------------------------------------- 28 UBS Global Asset Management INSURED MUNICIPAL INCOME FUND INC. TAX INFORMATION (UNAUDITED) We are required by subchapter M of the Internal Revenue Code of 1986, as amended, to advise you within 60 days of the Fund's fiscal year end (March 31, 2002) as to the federal tax status of distributions received by shareholders during such fiscal year. Accordingly, we are advising you that all dividends paid during the period by the Fund were federal tax-exempt interest dividends. The Fund did not invest in any securities which paid interest subject to the federal alternative minimum tax for individual taxpayers during its fiscal year. Therefore, none of the dividends paid by the Fund were subject to such tax. Because the Fund's fiscal year is not the calendar year, another notification will be sent in respect of calendar year 2002. The second notification, which reflects the amount to be used by calendar year taxpayers on their federal income tax returns, will be made in conjunction with Form 1099 DIVand will be mailed in January 2003. Shareholders are advised to consult their own tax advisors with respect to the tax consequences of their investment in the Fund. GENERAL INFORMATION (UNAUDITED) THE FUND Insured Municipal Income Fund Inc. (the "Fund") is a diversified, closed-end management investment company whose shares trade on the New YorkStock Exchange ("NYSE").The Fund's investment objective is to achieve a high level of current income that is exempt from federal income tax, consistent with the preservation of capital. The Fund's investment advisor and administrator is UBS Global Asset Management (US) Inc. ("UBS Global AM"), an indirect wholly owned asset management subsidiary of UBS AG, which has over $75.6 billion in assets under management as of April 30, 2002. Effective May 20, 2002, William Veronda assumed primary responsibility for the day-to-day management of the Fund. Mr. Veronda is an Executive Director and portfolio manager of UBS Global AM. Mr. Veronda joined UBS Global AM in September 1995 and has led its municipal research group since that date. Mr. Veronda previously served as the portfolio manager for PaineWebber Municipal High Income Fund from September 1995 until March 2001. INVESTMENT POLICY CHANGES The Fund's board approved modifications to the Fund's investment policies as a result of a new rule promulgated by the Securities and Exchange Commission. This rule generally requires a fund with a name suggesting that it focuses on a particular type of investment to invest at least 80% of its net assets (plus the amount of any borrowing for investment purposes) in the type of investment suggested by its name. The - -------------------------------------------------------------------------------- UBS Global Asset Management 29 INSURED MUNICIPAL INCOME FUND INC. GENERAL INFORMATION (UNAUDITED) (CONTINUED) INVESTMENT POLICY CHANGES (CONTINUED) investment policy changes became effective on April 8, 2002. These changes are not expected to affect materially portfolio management. The new 80% policy has been adopted as a "fundamental" investment policy; the Fund may not deviate from this 80% policy without shareholder approval. Many of the Fund's other investment policies are non-fundamental policies and may be changed by its board without shareholder approval. The Fund will interpret these new policies as if the following phrase appeared immediately after the words "net assets": "(plus the amount of any borrowing for investment purposes)." If subsequent to an investment, the Fund's 80% policy is no longer met (E.G., bonds are called resulting in a large influx of cash), then under normal circumstances, the Fund's future investments would be made in a manner that would bring the Fund's investments back in line with the 80% threshold. In order to place these changes in context, reproduced below are prior policies that were impacted by this change as well as new policies which replace the prior policies: PRIOR POLICIES IMPACTED BY CHANGE: The Fund normally invests substantially all of its assets in a diversified portfolio of long-term Municipal Obligations that are insured as to the timely payment of both principal and interest by an entity that, at the time of investment, has a claims-paying ability rated Aaa by Moody's, AAA by S&P or an equivalent rating by another NRSRO or (with respect to 20% of the Fund's total assets) that are, at the time of investment (1) backed by an escrow or trust account containing sufficient U.S. government or U.S. government agency securities to ensure the timely payment of principal and interest; (2) guaranteed as to timely payment of principal and interest by an entity which has a credit rating of Aaa by Moody's, AAA by S&P or an equivalent rating by another NRSRO; or (3) not insured, guaranteed or backed by escrows but rated Aaa by Moody's, AAA by S&P or an equivalent rating by another NRSRO. All the Municipal Obligations described above will have, at the time of investment, ratings of Aaa from Moody's, AAA from S&P or equivalent ratings from another NRSRO or (with respect to the Municipal Obligations described in (1) above), if unrated, will have been determined by the investment advisor to be of comparable quality to Municipal Obligations that have received such ratings. In addition, the Fund under normal circumstances invests at least 65% of its total assets in income producing securities. "Long-term" means Municipal Obligations with maturities in excess of 10 years. - -------------------------------------------------------------------------------- 30 UBS Global Asset Management INSURED MUNICIPAL INCOME FUND INC. GENERAL INFORMATION (UNAUDITED) (CONTINUED) INVESTMENT POLICY CHANGES (CONTINUED) The Fund normally invests substantially all of its assets in long-term Municipal Obligations. However, in order to invest cash reserves or when, in the opinion of the investment advisor, no suitable long-term Municipal Obligations are available, the Fund may invest up to 20% of its total assets in high quality short-term Municipal Obligations that are rated, at the time of investment, no lower than MIG-2 by Moody's, SP-2 by S&P or the equivalent by another NRSRO or, if unrated, that are determined by the investment advisor to be of comparable quality to Municipal Obligations that are rated at least MIG-2 or SP-2. These short-term Municipal Obligations may include variable or floating rate demand notes and similar instruments that trade as short-term obligations. For temporary defensive purposes, the Fund may invest without limit in such short-term Municipal Obligations. In addition, if in the opinion of the investment advisor no suitable short-term Municipal Obligations are available, the Fund temporarily may hold cash and, with respect to up to 20% of its total assets, invest in taxable money market instruments. REVISED POLICIES: The Fund normally invests substantially all of its assets in a diversified portfolio of long-term Municipal Obligations. Under normal circumstances, the Fund invests at least 80% of its net assets in insured Municipal Obligations, the income from which is exempt from regular federal income tax. "Insured Municipal Obligations" are Municipal Obligations that are insured as to the timely payment of both principal and interest by an entity that, at the time of investment, has a claims-paying ability rated Aaa by Moody's, AAA by S&P or an equivalent rating by another NRSRO. The Fund may invest up to 20% of its net assets in Municipal Obligations that are not insured but that are, at the time of investment, (1) backed by an escrow or trust account containing sufficient U.S. government or U.S. government agency securities to ensure the timely payment of principal and interest; (2) guaranteed as to timely payment of principal and interest by an entity which has a credit rating of Aaa by Moody's, AAA by S&P or an equivalent rating by another NRSRO; or (3) not insured, guaranteed or backed by escrows but rated Aaa by Moody's, AAA by S&P or an equivalent rating by another NRSRO. All the Municipal Obligations described above will have, at the time of investment, ratings of Aaa from Moody's, AAA from S&P or equivalent ratings from another NRSRO or (with respect to the Municipal Obligations described in (1) above), if unrated, will have been determined by the investment - -------------------------------------------------------------------------------- UBS Global Asset Management 31 INSURED MUNICIPAL INCOME FUND INC. GENERAL INFORMATION (UNAUDITED) (CONTINUED) INVESTMENT POLICY CHANGES (CONCLUDED) advisor to be of comparable quality to Municipal Obligations that have received such ratings. "Long-term" means Municipal Obligations with maturities in excess of 10 years at the time of purchase. The Fund normally invests substantially all of its assets in long-term Municipal Obligations. However, in order to invest cash reserves or when, in the opinion of the investment advisor, no suitable long-term Municipal Obligations are available, the Fund may invest up to 20% of its net assets in high quality short-term Municipal Obligations that are rated, at the time of investment, no lower than MIG-2 by Moody's, SP-2 by S&P or the equivalent by another NRSRO or, if unrated, that are determined by the investment advisor to be of comparable quality to Municipal Obligations that are rated at least MIG-2 or SP-2. These short-term Municipal Obligations may include variable or floating rate demand notes and similar instruments that trade as short-term obligations. For temporary defensive purposes, the Fund may invest without limit in such short-term Municipal Obligations. In addition, if in the opinion of the investment advisor no suitable short-term Municipal Obligations are available, the Fund temporarily may hold cash and, with respect to up to 20% of its net assets, invest in taxable money market instruments. SHAREHOLDER INFORMATION The Fund's NYSE trading symbol is "PIF." Comparative net asset value and market price information about the Fund is published weekly in THE WALLSTREET JOURNAL, THE NEW YORK TIMES and BARRON'S, as well as in numerous other publications. DIVIDEND REINVESTMENT PLAN The Fund's Board has established a Dividend Reinvestment Plan (the "Plan") under which all common shareholders whose shares are registered in their own names, or in the name of UBS PaineWebber Inc. or its nominee, will have all dividends and other distributions on their shares of common stock automatically reinvested in additional shares of common stock, unless such common shareholders elect to receive cash.Common shareholders who elect to hold their shares in the name of another broker or nominee should contact such broker or nominee to determine whether, or how, they may participate in the Plan.The ability of such shareholders to participate in the Plan may change if their shares are transferred into the name of another broker or nominee. - -------------------------------------------------------------------------------- 32 UBS Global Asset Management INSURED MUNICIPAL INCOME FUND INC. GENERAL INFORMATION (UNAUDITED) (CONTINUED) 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 8030, Boston, Massachusetts 02266-8030. For further information regarding the Plan, you may also contact the transfer agent directly at 1-800-331-1710. - -------------------------------------------------------------------------------- UBS Global Asset Management 33 INSURED MUNICIPAL INCOME FUND INC. SUPPLEMENTAL INFORMATION (UNAUDITED) BOARD OF DIRECTORS & OFFICERS The Fund is governed by a Board of Directors which oversees the Fund's operations. Each Director serves until the next annual meeting of shareholders or until his or her successor is elected and qualified. 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 or Officer of the Fund, and the Director's or Officer's principal occupations during the last five years. INTERESTED DIRECTORS
Position(s) Length of Name, Address, Held with Time Principal Occupation(s) and Age Fund Served During Past 5 Years - ---------------------------------------------------------------------------------------------- Margo N. Alexander*+; 55 Director Since 1995 Mrs. Alexander is an executive vice president of UBS PaineWebber (since March 1984). She was chief executive officer of UBS Global AM from January 1995 to October 2000, a director (from January 1995 to September 2001) and chairman (from March 1999 to September 2001). E. Garrett Bewkes, Jr.**+; 75 Director Since 1993 Mr. Bewkes serves as a consultant and to UBS PaineWebber (since May 1999). Chairman Prior to November 2000, he was a of the director of Paine Webber Group Inc. Board of ("PW Group," formerly the holding Directors company of UBS PaineWebber and UBS Global AM) and prior to 1996, he was a consultant to PW Group. Prior to 1988, he was chairman of the board, president and chief executive officer of American Bakeries Company.
- ---- + Mr. Bewkes and Mrs. Alexander are "interested persons" of the Fund as defined in the Investment Company Act by virtue of their positions with UBS Global AM and/or UBS PaineWebber. - -------------------------------------------------------------------------------- 34 UBS Global Asset Management Number of Portfolios in Fund Compex Other Directorships Overseen by Director Held by Director - -------------------------------------------------------------------------------- Mrs. Alexander is a director or trustee None of 22 investment companies (consisting of 43 portfolios) for which UBS Global AM, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Mr. Bewkes is a director or trustee of 34 Mr. Bewkes is also a director of investment companies (consisting of 55 Interstate Bakeries Corporation. portfolios) for which UBS Global AM, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. - -------------------------------------------------------------------------------- UBS Global Asset Management 35 INSURED MUNICIPAL INCOME FUND INC. SUPPLEMENTAL INFORMATION (UNAUDITED) (CONTINUED) INDEPENDENT DIRECTORS
Position(s) Length of Name, Address, Held with Time Principal Occupation(s) and Age Fund Served During Past 5 Years - ----------------------------------------------------------------------------------------------- Richard Q. Armstrong; 66 Director Since 1995 Mr. Armstrong is chairman and principal R.Q.A. Enterprises of R.Q.A. Enterprises (management One Old Church Road - consulting firm) (since April 1991 and Unit # 6 principal occupation since March 1995). Greenwich, CT 06830 Mr. Armstrong was chairman of the board, chief executive officer and co-owner of Adirondack Beverages (producer and distributor of soft drinks and sparkling/still waters) (October 1993- March 1995). He was a partner of The New England Consulting Group (management consulting firm) (December 1992-September 1993). He was managing director of LVMH U.S. Corporation (U.S. subsidiary of the French luxury goods conglomerate, Louis Vuitton Moet Hennessey Corporation) (1987-1991) and chairman of its wine and spirits subsidiary, Schieffelin & Somerset Company (1987-1991). David J. Beaubien; 67 Director Since 2001 Mr. Beaubien is chairman of Yankee 101 Industrial Road Environmental Systems, Inc., a manu- Turners Falls, MA 01376 facturer of meteorological measuring systems. Prior to January 1991, he was senior vice president of EG&G, Inc., a company which makes and provides a variety of scientific and technically oriented products and services. From 1985 to January 1995, Mr. Beaubien served as a director or trustee on the boards of the Kidder, Peabody & Co. Incorporated mutual funds.
- -------------------------------------------------------------------------------- 36 UBS Global Asset Management Number of Portfolios in Fund Compex Other Directorships Overseen by Director Held by Director - -------------------------------------------------------------------------------- Mr. Armstrong is a director or trustee of Mr. Armstrong is also a director 22 investment companies (consisting of 43 of AlFresh Beverages Canada, Inc. portfolios) for which UBS Global AM, UBS (a Canadian Beverage subsidiary PaineWebber or one of their affiliates of AlFresh Foods Inc.) (since serves as investment advisor, sub-advisor October 2000). or manager. Mr. Beaubien is a director or trustee of 22 Mr. Beaubien is also a director investment companies (consisting of 43 Inc., of IEC Electronics, a portfolios) for which UBS Global AM, UBS manufacturer of electronic PaineWebber or one of their affiliates assemblies. serves as investment advisor, sub-advisor or manager. - -------------------------------------------------------------------------------- UBS Global Asset Management 37 INSURED MUNICIPAL INCOME FUND INC. SUPPLEMENTAL INFORMATION (UNAUDITED) (CONTINUED) INDEPENDENT DIRECTORS (CONTINUED)
Position(s) Length of Name, Address, Held with Time Principal Occupation(s) and Age Fund Served During Past 5 Years - ----------------------------------------------------------------------------------------------- Richard R. Burt; 55 Director Since 1995 Mr. Burt is chairman of Diligence LLC 1275 Pennsylvania Ave., (international information and security N.W. firm) and IEP Advisors (international Washington, D.C. 20004 investments and consulting firm). He was the chief negotiator in the Strategic Arms Reduction Talks with the former Soviet Union (1989-1991) and the U.S. Ambassador to the Federal Republic of Germany (1985-1989). From 1991-1994, he served as a partner of McKinsey & Company (management consulting firm). Meyer Feldberg; 60 Director Since 1993 Mr. Feldberg is Dean and Professor of Columbia University Management of the Graduate School 101 Uris Hall of Business, Columbia University. Prior New York, New York to 1989, he was president of the Illinois 10027 Institute of Technology. George W. Gowen; 72 Director Since 1996 Mr. Gowen is a partner in the law firm 666 Third Avenue of Dunnington, Bartholow & Miller. New York, New York Prior to May 1994, he was a partner in 10017 the law firm of Fryer, Ross & Gowen. William W. Hewitt, Jr.; 73 Director Since 2001 Mr. Hewitt is retired. From 1990 to c/o UBS Global Asset January 1995, Mr. Hewitt served as a Management (US) Inc. director or trustee on the boards of the 51 West 52nd Street Kidder, Peabody & Co.Incorporated mutual New York, New York funds. From 1986-1988, he was an executive 10019-6114 vice president and director of mutual funds, insurance and trust services of Shearson Lehman Brothers Inc. From 1976-1986, he was president of Merrill Lynch Funds Distributor, Inc. Morton L. Janklow; 72 Direct or Since 2001 Mr. Janklow is senior partner of Janklow 445 Park Avenue & Nesbit Associates, an international New York, New York literary agency representing leading 10022 authors in their relationships with publishers and motion picture, television and multi-media companies, and of counsel to the law firm of Janklow & Ashley.
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Number of Portfolios in Fund Compex Other Directorships Overseen by Director Held by Director - ---------------------------------------------------------------------------------------------- Mr. Burt is a director or trustee of 22 Mr. Burt is also a director of Archer-Daniels- investment companies (consisting of 43 Midland Company (agricultural commodities), portfolios) for which UBS Global AM, UBS Hollinger International Company (publishing), PaineWebber or one of their affiliates six investment companies in the Deutsche Bank serves as investment advisor, sub-advisor family of funds, nine investment companies in or manager. the Flag Investors family of funds, The Central European Fund, Inc. and The Germany Fund, Inc., a director of IGT, Inc. (provides technology to gaming and wagering industry) (since July 1999) and chairman of Weirton Steel Corp. (makes and finishes steel products) (since April 1996). Dean Feldberg is a director or trustee of Dean Feldberg is also a director of Primedia Inc. 34 investment companies (consisting of 55 (publishing), Federated Department Stores, Inc. portfolios) for which UBS Global AM, UBS (operator of department stores), Revlon, Inc. PaineWebber or one of their affiliates (cosmetics) and Select Medical Inc. (healthcare serves as investment advisor, sub-advisor services). or manager. Mr. Gowen is a director or trustee of 34 None investment companies (consisting of 55 portfolios) for which UBS Global AM, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Mr. Hewitt is a director or trustee of 22 Mr. Hewitt is also a director or trustee of the investment companies (consisting of 43 Guardian Life Insurance Company mutual funds. portfolios) for which UBS Global AM, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Mr. Janklow is a director or trustee of 22 None investment companies (consisting of 43 portfolios) for which UBS Global AM, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager.
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Position(s) Length of Name, Address, Held with Time Principal Occupation(s) and Age Fund Served During Past 5 Years - ---------------------------------------------------------------------------------------------------- Frederic V. Malek; 65 Director Since 1996 Mr. Malek is chairman of Thayer Capital 1455 Pennsylvania Avenue, Partners (merchant bank) and chairman N.W. of Thayer Hotel Investors III, Thayer Hotel Suite 350 Investors II and Lodging Opportunities Washington, D.C. Fund (hotel investment partnerships). 20004 From January 1992 to November 1992, he was campaign manager of Bush- Quayle `92. From 1990 to 1992, he was vice chairman and, from 1989 to 1990, he was president of Northwest Airlines Inc. and NWA Inc. (holding company of Northwest Airlines Inc.). Prior to 1989, he was employed by the Marriott Corporation (hotels, restaurants, airline catering and contract feeding), where he most recently was an executive vice president and president of Marriott Hotels and Resorts. Carl W. Schafer; 66 Director Since 1996 Mr. Schafer is president of the Atlantic 66 Witherspoon Street Foundation (charitable foundation). #1100 Prior to January 1993, he was chairman Princeton, NJ 08542 of the Investment Advisory Committee of the Howard Hughes Medical Institute. William D. White; 68 Director Since 2001 Mr. White is retired. From February P.O. Box 199 1989 through March 1994, he was Upper Black Eddy, PA president of the National League of 18972 Professional Baseball Clubs. Prior to 1989, he was a television sportscaster for WPIX-TV, New York. Mr. White served on the Board of Directors of Centel from 1989 to 1993 and until recently on the board of directors of Jefferson Banks Incorporated, Philadelphia, PA.
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Number of Portfolios in Fund Compex Other Directorships Overseen by Director Held by Director - ---------------------------------------------------------------------------------------------- Mr. Malek is a director or trustee of 22 Mr. Malek is also a director of Aegis investment companies (consisting of 43 Communications, Inc. (tele-services), American portfolios) for which UBS Global AM, UBS Management Systems, Inc. (management PaineWebber or one of their affiliates consulting and computer related services), serves as investment advisor, sub-advisor Automatic Data Processing, Inc. (computing or manager. services), CB Richard Ellis, Inc. (real estate services), FPL Group, Inc. (electric services), Manor Care, Inc. (health care), and Northwest Airlines Inc. Mr. Schafer is a director or trustee of 22 Mr. Schafer is also a director of Labor Ready, investment companies (consisting of 43 Inc. (temporary employment), Roadway Corp. portfolios) for which UBS Global AM, UBS (trucking), The Guardian Group of Mutual PaineWebber or one of their affiliates Funds, the Harding, Loevner Funds, E.I.I. Realty serves as investment advisor, sub-advisor Securities Trust (investment company) and or manager. Frontier Oil Corporation. Mr. White is a director or trustee of 22 None investment companies (consisting of 43 portfolios) for which UBS Global AM, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager.
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Principal Occupation(s) During Position(s) Held Past 5 Years; Number of with the Fund; Portfolios in Fund Complex for Name, Address and Age Length of Time Served which Person Serves as an Officer - --------------------------------------------------------------------------------------- Thomas Disbrow****; 36 Vice President and Mr. Disbrow is a director and a Assistant Treasurer senior manager of the mutual fund since 2000 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 22 investment companies (consisting of 43 portfolios) for which UBS Global AM, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Amy R. Doberman**; 40 Vice President and Ms. Doberman is a managing Secretary director and general counsel of since 2000 UBS Global AM. From December 1997 through July 2000, she was general counsel of Aeltus Investment Management, Inc. Prior to working at Aeltus, Ms. Doberman was Assistant Chief Counsel of the SEC's Division of Investment Management. Ms. Doberman is secretary of UBS Supplementary Trust and a vice president and secretary of 24 investment companies (consisting of 82 portfolios) for which UBS Global AM, UBSGlobal Asset Management (Americas) Inc. ("UBSGlobal AM (Americas)"), UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Elbridge T. Gerry III**; 45 Vice President Mr. Gerry is a managing director since 1996 and chief investment officer--fixed income of UBS Global AM. Mr. Gerry is a Vice President of 6 investment companies (consisting of 11 portfolios) for which UBS Global AM, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager.
- -------------------------------------------------------------------------------- 42 UBS Global Asset Management INSURED MUNICIPAL INCOME FUND INC. SUPPLEMENTAL INFORMATION (UNAUDITED) (CONTINUED) OFFICERS (CONTINUED)
Principal Occupation(s) During Position(s) Held Past 5 Years; Number of with the Fund; Portfolios in Fund Complex for Name, Address and Age Length of Time Served which Person Serves as an Officer - --------------------------------------------------------------------------------------- David M. Goldenberg**; 35 Vice President and Mr. Goldenberg is an executive Assistant Secretary director and deputy general since 2002 counsel of UBS Global AM. From 2000-2002 he was director, legal affairs at Lazard Asset Management. Mr. Goldenberg was global director of compliance for SSB Citi Asset Management Group from 1998-2000. He was associate general counsel at Smith Barney Asset Management from 1996-1998. Prior to working at Smith Barney Asset Management, Mr. Goldenberg was branch chief and senior counsel of the SEC's Division of Investment Management. Mr. Goldenberg is a vice president and assistant secretary of 22 investment companies (consisting of 43 portfolios) for which UBS Global AM, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Kevin J. Mahoney****; 36 Vice President and Mr. Mahoney is a director and a Assistant Treasurer senior manager of the mutual fund since 1999 finance department of UBS Global AM. From August 1996 through March 1999, he was the manager of the mutual fund internal control group of Salomon Smith Barney. Mr. Mahoney is a vice president and assistant treasurer of 22 investment companies (consisting of 43 portfolios) for which UBS Global AM, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager.
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Principal Occupation(s) During Position(s) Held Past 5 Years; Number of with the Fund; Portfolios in Fund Complex for Name, Address and Age Length of Time Served which Person Serves as an Officer - --------------------------------------------------------------------------------------- Emil Polito**; 41 Vice President Mr. Polito is an executive since 2001 director and head of investment support and mutual fund services of UBS Global AM. From July 2000 to October 2000, he was a senior manager of investment systems at Dreyfus Corp. Prior to July 2000, Mr. Polito was a senior vice president and director of operations and control for UBS Global AM. Mr. Polito is a vice president of 22 investment companies (consisting of 43 portfolios) for which UBS Global AM, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Paul H. Schubert****; 39 Vice President and Mr. Schubert is an executive Treasurer since 1994 director and head of the mutual fund finance department of UBS Global AM. Mr. Schubert is treasurer and principal accounting officer of UBS Supplementary Trust and of two investment companies (consisting of 39 portfolios) and a vice president and treasurer of 22 investment companies (consisting of 43 portfolios) for which UBS Global AM, UBS Global AM (Americas), UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager.
- -------------------------------------------------------------------------------- 44 UBS Global Asset Management INSURED MUNICIPAL INCOME FUND INC. SUPPLEMENTAL INFORMATION (UNAUDITED) (CONCLUDED) OFFICERS (CONCLUDED)
Principal Occupation(s) During Position(s) Held Past 5 Years; Number of with the Fund; Portfolios in Fund Complex for Name, Address and Age Length of Time Served which Person Serves as an Officer - --------------------------------------------------------------------------------------- Brian M. Storms**; 47 President since 2000 Mr. Storms is chief operating officer (since September 2001) and president of UBS Global AM (since March 1999), and president and chief operating officer of UBS Global AM (Americas) and UBS Global Asset Management (New York) Inc. (since October 2001). Mr. Storms was chief executive officer of UBS Global AM from October 2000 to September 2001. He was director/trustee of several investment companies in the UBS family of funds (1999-2001). He was president of Prudential Investments (1996-1999). Prior to joining Prudential Investments he was a managing director at Fidelity Investments. Mr. Storms is president and trustee of UBS Supplementary Trust and of two investment companies (consisting of 39 portfolios) and president of 22 investment companies (consisting of 43 portfolios) for which UBS Global AM, UBS Global AM (Americas), UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager. Keith A. Weller**; 40 Vice President and Mr. Weller is a director and Assistant Secretary senior associate general counsel since 1995 of UBS Global AM. Mr. Weller is a vice president and assistant secretary of 22 investment companies (consisting of 43 portfolios) for which UBS Global AM, UBS PaineWebber or one of their affiliates serves as investment advisor, sub-advisor or manager.
- -------- * This person's business address is 1285 Avenue of the Americas, 33rd Floor, New York, New York 10019-6114. ** This person's business address is 51 West 52nd Street, New York, New York 10019-6114. *** Address for mailing purposes only. **** This person's business address is Newport Center III, 499 Washington Blvd., 14th Floor, Jersey City, New Jersey 07310-1998. - -------------------------------------------------------------------------------- UBS Global Asset Management 45 (This page has been left blank intentionally.) INSURED MUNICIPAL INCOME FUND INC. DIRECTORS E. Garrett Bewkes, Jr. George W. Gowen CHAIRMAN William W. Hewitt, Jr. Morton L. Janklow Margo N. Alexander Frederic V. Malek Richard Q. Armstrong Carl W. Schafer David J. Beaubien William D. White Richard R. Burt Meyer Feldberg PRINCIPAL OFFICERS Brian M. Storms Paul H. Schubert PRESIDENT VICE PRESIDENT AND TREASURER Amy R. Doberman Elbridge T. Gerry III VICE PRESIDENT AND SECRETARY VICE PRESIDENT 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. - -------------------------------------------------------------------------------- UBS Global Asset Management [LOGO] UBS UBS GLOBAL ASSET MANAGEMENT (US) INC. 51 West 52nd Street New York, NY 10019 -----END PRIVACY-ENHANCED MESSAGE-----