UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-07528
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Insured Municipal Income Fund Inc.
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
51 West 52nd Street, New York, New York 10019-6114
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(Address of principal executive offices) (Zip code)
Amy R. Doberman
UBS Global Asset Management (US) Inc.
51 West 52nd Street
New York, NY 10019-6114
(Name and address of agent for service)
Copy to:
Jack W. Murphy, Esq.
Dechert
1775 I Street, N.W.
Washington, DC 20006-2401
Registrant's telephone number, including area code: 212-882 5000
Date of fiscal year end: March 31
Date of reporting period: September 30, 2003
ITEM 1. REPORTS TO STOCKHOLDERS.
[UBS LOGO] Global Asset
Management
Insured Municipal
Income Fund Inc.
Semiannual Report
September 30, 2003
Insured Municipal Income Fund Inc.
November 14, 2003
DEAR SHAREHOLDER,
We present you with the semiannual report for Insured Municipal Income Fund Inc.
for the six months ended September 30, 2003.
PERFORMANCE
For the six months ended September 30, 2003, Insured Municipal Income Fund
Inc.'s net asset value return was 2.07%. On a market price basis, the Fund's
return was 3.37%. During the same time period, the Fund's peer group, as
measured by the Lipper Insured Municipal Debt Funds (Leveraged) Median,
generated net asset value and market price returns of 3.23% and 1.63%,
respectively. (For more performance information, please refer to "Performance At
A Glance" on page 6).
The Fund used leverage during the fiscal period, which was 31.7% of total assets
as of September 30, 2003. Leverage can magnify returns on the upside and on the
downside, and can create wider dispersions of returns within the Fund's peer
group.
AN INTERVIEW WITH PORTFOLIO MANAGER WILLIAM VERONDA
Q. CAN YOU DESCRIBE THE ECONOMIC ENVIRONMENT DURING THE REPORTING PERIOD?
A. As the reporting period began in April 2003, there was a great deal of
uncertainty surrounding the economy. First quarter 2003 gross domestic
product (GDP) growth came in at 1.4%, unchanged from the prior quarter's
figure. Although the war in Iraq had temporarily stimulated the equity
markets, its impact on the economy, if any, was at that point uncertain. In
addition, heightened concerns about terrorism, widening turmoil in the
Middle East and tepid corporate spending appeared to further undermine the
economy.
The following quarter produced more positive news. The combined effects of
significantly higher military spending, an increase in exports and a
stronger manufacturing sector fueled an up-tick in economic growth that
ultimately resulted in a second quarter 2003 GDP figure of 3.3%. This was
followed by a preliminary third quarter 2003 GDP estimate of 7.2%--far
higher than anticipated, and the sharpest recorded advance since 1984.
Consumer and business spending provided significant impetus behind this
figure; consumer spending rose 6.6%, its highest rate since 1988, while
business spending surged 11.1%, its best posting since the first quarter of
2000.
----------------------------
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
----------------------------
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1
Insured Municipal Income Fund Inc.
Q. WHAT WERE SOME OF THE OTHER FACTORS AFFECTING THE ECONOMY?
A. Consumer spending played an integral role in propping up the economy during
the period, as the lower interest rate environment engendered a surge in
mortgage refinancing. The Bush Administration's tax cut package also
appeared to spur on consumers, who now had more disposable income on hand.
Conversely, for much of the period, corporations postponed major purchases
as they waited for clearer indications of a sustainable economic upturn.
More recently, there have been early signs that business spending is slowly
improving, although it's not yet clear if spending will increase to the
point that it will create new jobs.
Q. HOW DID THE FEDERAL RESERVE BOARD (THE "FED") REACT TO THE WEAKENING
ECONOMY?
A. As the reporting period began, the federal funds rate was at
1.25%--unchanged since November 2002. The Fed had taken the position that
it would not implement any further rate cuts, although it would maintain a
"heightened surveillance" of the economy in light of the conflict with
Iraq. After the war's start, however, and absent any lift in the economy,
the Fed made it clear that a future rate cut was likely, citing its view
that economic weakness was a greater risk than inflation. This cut occurred
during the Fed's June 25, 2003 Federal Open Market Committee meeting, at
which time the federal funds rate was lowered by a quarter of a percentage
point to 1.0%--its lowest level since 1958.
Since that time, the Fed has remained on hold, although it has made clear
its willingness to cut rates further if necessary. At its September 16,
2003 meeting, the Fed rationalized this position by noting "an
accommodative stance on monetary policy, coupled with robust underlying
growth in productivity, is providing important ongoing support to economic
activity."
Q. HOW DID THE BOND MARKET PERFORM DURING THE SIX-MONTH PERIOD?
A. During the first two months of the period, yields fell and prices rose as
investors were drawn to the relative safety offered by fixed income
securities, including municipal bonds, amid ongoing economic and
geopolitical uncertainty. This scenario changed when, beginning in June
2003, fixed income prices began to fall. The combined forces that triggered
this selloff were a less-than-hoped-for cut in the fed funds rate, a
lessening of concerns regarding the potential for widespread deflation, and
increasing fears that an improving economy would lead to higher inflation
and a less accommodative fiscal policy. The selloff gained momentum in July
before stabilizing during August and September of 2003. Mixed signals in
terms of the economy--including stubbornly high unemployment--coupled with
heightened geopolitical concerns, helped the bond market recoup some of its
losses late in the review period.
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2
Insured Municipal Income Fund Inc.
Q. MUCH HAS BEEN SAID ABOUT THE COUNTRY'S RISING BUDGET DEFICIT. HOW HAS THIS
AFFECTED THE MUNICIPAL BOND MARKET?
A. At the federal level, the US Treasury Department estimates that the federal
budget deficit was between $370 and $380 billion as of the fiscal year
ended September 30, 2003. On a state and local level, budgets that were
developed using a "best case" scenario that factored in a strong economy
and robust capital gains revenues, operated in an environment characterized
by an uneven economy and a lengthy bear market. As a result, tax revenues
were less than projected. Although the final numbers have not yet been
released, it is projected that over 90% of the states are experiencing
shortfalls, and state and local budget deficits could ultimately come in at
$50 billion for the fiscal year. Furthermore, many states expect budget
shortfalls for fiscal year 2004. While a portion of the state and local
shortfalls has been met by drawing down on previous surpluses, these have
now been largely depleted. As a result, federal, state and local
governments have increased their debt issuance. To a great extent, the
marketplace has thus far absorbed this added supply.
Q. HOW DID YOU POSITION THE FUND'S PORTFOLIO DURING THE REPORTING PERIOD?
A. The Fund's duration was generally in line with that of the Lehman Municipal
Bond Index during the period. In terms of sector positioning, we continued
to emphasize essential service revenue bonds, including those issued by
revenue-producing utilities such as water and sewer authorities. We also
liked the fundamentals of certain airport revenue bonds. While there
continue to be problems with the airline industry, the need for airfreight
and transportation remains, and demand should increase as the economy
strengthens.
To increase the Fund's level of diversification and maximize investment
opportunities, we increased our exposure to investment grade securities
whose ratings are among the very highest. These holdings are those that
have achieved AAA status on their own merits, without the benefit of
insurance. Issuers of these types of credits include Columbia University in
New York, which issues bonds through the New York State Dormitory
Authority, and Texas A&M University, whose bonds are effectively secured by
US Treasuries.
Q. CAN YOU PROVIDE SOME EXAMPLES OF NOTEWORTHY PERFORMERS DURING THE PERIOD?
A. A number of the Fund's holdings appreciated significantly in price during
the period, then were subsequently sold when we felt they had become
overvalued. This occurred, for example, with a block of Chicago long-term
revenue bonds.
Q. CAN YOU GIVE SOME EXAMPLES OF HOLDINGS THAT DID NOT MEET YOUR EXPECTATIONS?
A. Securities in the portfolio are constantly monitored to identify possible
signs of deteriorating underlying credits. During the period, we sold
several holdings that fell into this category, including Birmingham Baptist
Medical Center and University of California revenue bonds.
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3
Insured Municipal Income Fund Inc.
Q. WERE THERE ANY MATERIAL CHANGES TO YOUR INVESTMENT STRATEGY DURING THE
PERIOD?
A. Up until recently, the Fund had a policy of investing substantially all of
its assets in municipal obligations having maturities in excess of 10 years
at the time of purchase. In July 2003, the Fund's Board of Directors
approved the elimination of this restriction, allowing the Fund increased
freedom to invest in shorter-term securities. As a result, while we
anticipate that the majority of the Fund's portfolio will retain its
longer-term bias, this change will allow us greater flexibility in pursuing
compelling opportunities in the marketplace. For example, in the time since
the policy change went into effect, we purchased Metropolitan Pier & Expo
District Illinois bonds, due in 2010, which we believe are very
attractively priced and offer an attractive effective yield.
Q. HOW DO YOU ANTICIPATE POSITIONING THE FUND'S PORTFOLIO GOING FORWARD?
A. Looking ahead, we anticipate keeping the Fund's duration close to that of
the Lehman Municipal Bond Index. As we've seen in recent months, interest
rate movements can occur rapidly. Given the mixed signals surrounding the
economy, we would expect this type of volatility to continue in the months
ahead. In terms of the underlying portfolio, we expect to continue our
long-held emphasis on essential service revenue bonds, especially in light
of the mounting budget deficits. We also intend to maintain our
high-quality bias, and to continue to employ careful credit analysis on
securities being considered for the Fund, as well as on those currently
held in the portfolio.
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4
Insured Municipal Income Fund Inc.
Our ultimate objective in managing your investments is to help you
successfully meet your financial goals. We thank you for your continued
support and welcome any comments or questions you may have. For additional
information on UBS funds,* please contact your financial advisor or visit
us at www.ubs.com.
Sincerely,
/s/ Joseph A. Varnas
JOSEPH A. VARNAS
PRESIDENT
Insured Municipal Income Fund Inc.
MANAGING DIRECTOR
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 six months ended September 30, 2003, and reflects our views
at the time of its writing. Of course, these views may change in response to
changing circumstances, and they do not guarantee the future performance of the
markets or the Fund. We encourage you to consult your financial advisor
regarding your personal investment program.
* Mutual funds are sold by prospectus only. The prospectuses for the funds
contain more complete information regarding risks, charges and expenses, and
should be read carefully before investing.
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5
Insured Municipal Income Fund Inc.
PERFORMANCE AT A GLANCE
AVERAGE ANNUAL RETURN, PERIODS ENDED 9/30/03
NET ASSET VALUE RETURN 6 MONTHS 1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
Insured Municipal Income Fund Inc. 2.07% 3.51% 5.13% 5.41%
--------------------------------------------------------------------------------
Lipper Insured Municipal Debt Funds
(Leveraged) Median 3.23% 4.41% 5.76% 6.09%
--------------------------------------------------------------------------------
MARKET PRICE RETURN
--------------------------------------------------------------------------------
Insured Municipal Income Fund Inc. 3.37% 2.65% 5.60% 5.54%
--------------------------------------------------------------------------------
Lipper Insured Municipal Debt Funds
(Leveraged) Median 1.63% 3.46% 5.40% 6.31%
--------------------------------------------------------------------------------
Past performance does not predict future performance. The return and principal
value of an investment will fluctuate, so that an investor's shares, when sold,
may be worth more or less than their original cost. NAV return assumes, for
illustration only, that dividends were reinvested at the net asset value on the
ex-dividend dates. Market price return assumes dividends were reinvested under
the Dividend Reinvestment Plan. NAV and market price returns for periods of less
than one year are cumulative. Returns do not include brokerage commissions or
taxes paid on realized capital gains.
Lipper peer group data calculated by Lipper Inc.; used with permission. The
Lipper Median is the return of the fund that places in the middle of the peer
group.
SHARE PRICE, DIVIDEND AND YIELDS AS OF 9/30/03
--------------------------------------------------------------------------------
Market Price $14.03
.................................................................................
Net Asset Value (per share applicable to common shareholders) $15.66
.................................................................................
12-Month Net Investment Income Dividend (ended 9/30/03) $0.840
.................................................................................
September 2003 Dividend $0.070
.................................................................................
Market Yield* 5.99%
.................................................................................
NAV Yield* 5.36%
.................................................................................
IPO Yield* 5.60%
.................................................................................
* Market yield is calculated by multiplying the September dividend by 12 and
dividing by the month-end market price. NAV yield is calculated by
multiplying the September dividend by 12 and dividing by the month-end net
asset value. IPO yield is calculated by multiplying the September dividend by
12 and dividing by the initial public offering price of $15 per share. Prices
and yields will vary.
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6
Insured Municipal Income Fund Inc.
PORTFOLIO STATISTICS
CHARACTERISTICS 9/30/03 3/31/03 9/30/02
-----------------------------------------------------------------------------------------------------
Net Assets Applicable to
Common Shareholders (mm) $323.1 $325.1 $329.3
......................................................................................................
Weighted Average Maturity* 13.5 yrs 14.1 yrs 12.9 yrs
......................................................................................................
Weighted Average Duration* 5.2 yrs 4.4 yrs 3.2 yrs
......................................................................................................
Weighted Average Coupon* 4.9% 5.4% 5.5%
......................................................................................................
AMT Paper** 0.0% 0.0% 0.0%
......................................................................................................
Leverage** 31.7% 31.1% 31.0%
......................................................................................................
Callable/Maturing
Within Five Years* 14.7% 16.6% 26.5%
......................................................................................................
Callable/Maturing
Beyond Five Years* 85.3% 83.4% 73.5%
......................................................................................................
CREDIT QUALITY*** 9/30/03 3/31/03 9/30/02
......................................................................................................
AAA/Aaa 128.8% 142.6% 140.5%
......................................................................................................
SP-1/MIG-1 1.3 -- 2.8
......................................................................................................
A1/P1 14.6 3.7 0.3
......................................................................................................
Liabilities in Excess of
Other Assets -- (0.2) --
......................................................................................................
Other Assets in Excess
of Liabilities 1.7 -- 2.0
......................................................................................................
Liquidation Value of Auction
Preferred Shares (46.4) (46.1) (45.6)
......................................................................................................
TOTAL 100.0% 100.0% 100.0%
......................................................................................................
TOP 10 STATES*** 9/30/03 3/31/03 9/30/02
-----------------------------------------------------------------------------------------------------
Texas 27.6% Texas 28.3% Texas 27.0%
......................................................................................................
California 21.0 Illinois 17.9 Illinois 17.7
......................................................................................................
Illinois 19.1 Pennsylvania 13.4 Pennsylvania 13.9
......................................................................................................
New York 13.0 Rhode Island 10.5 Rhode Island 10.2
......................................................................................................
Massachusetts 7.0 California 8.6 Indiana 6.7
......................................................................................................
Rhode Island 6.2 Indiana 7.4 Kentucky 5.7
......................................................................................................
Washington 6.1 North Carolina 7.0 Washington 5.2
......................................................................................................
Nevada 5.6 Alabama 4.8 California 4.9
......................................................................................................
North Carolina 5.5 Michigan 3.9 Alabama 4.6
......................................................................................................
Pennsylvania 4.4 Massachusetts 3.9 Michigan 4.6
......................................................................................................
TOTAL 115.5% 105.7% 100.5%
......................................................................................................
TOP FIVE SECTORS*** 9/30/03 3/31/03 9/30/02
......................................................................................................
Power 33.6% Power 32.5% Water 28.9%
......................................................................................................
Water 30.8 Pre-refunded 20.1 Power 27.1
......................................................................................................
Escrow-to-maturity 16.1 Escrow-to-maturity 16.8 Hospital 22.7
......................................................................................................
Hospital 10.1 Water 14.6 General Obligations 14.1
......................................................................................................
Airport 8.4 Hospital 9.8 Sales Tax 13.4
......................................................................................................
TOTAL 99.0% 93.8% 106.2%
......................................................................................................
* Weightings represent percentages of portfolio assets as of the dates
indicated. The Fund's portfolio is actively managed and its composition will
vary over time.
** As a percentage of total assets as of the dates indicated.
*** As a percentage of net assets applicable to common shareholders as of the
dates indicated. Credit quality ratings designated by Standard & Poor's
Rating Group and Moody's Investor Services, Inc. Both are independent rating
agencies.
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7
Insured Municipal Income Fund Inc.
Portfolio of Investments -- September 30, 2003 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
-------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--128.83%
=======================================================================================================
ALABAMA--1.28%
$ 1,590 Alabama Water Pollution
Control Authority
Revolving Fund Loan-
Series A (AMBAC Insured) Aaa AAA 08/15/17 6.750% $1,745,597
........................................................................................................
2,265 Jefferson County Sewer
Revenue-Series A
(FGIC Insured) Aaa AAA 02/01/27 5.375 2,381,059
........................................................................................................
4,126,656
-------------------------------------------------------------------------------------------------------
CALIFORNIA--20.97%
10,000 California State Department
of Water Resources Power
Supply Revenue-Series A
(AMBAC Insured) Aaa AAA 05/01/16 5.500 11,182,700
........................................................................................................
4,000 California State Department
of Water Resources Water
Revenue-Series W
(FSA Insured) Aaa AAA 12/01/14 5.500 4,645,680
........................................................................................................
30 California State General
Obligation (FGIC Insured) Aaa AAA 11/01/12 7.000 32,471
........................................................................................................
3,125 Contra Costa Water District
Water Revenue-Series L
(FSA Insured) Aaa AAA 10/01/19 5.000 3,301,219
........................................................................................................
5,000 Contra Costa Water District
Water Revenue-Refunding-
Series M (FSA Insured) Aaa AAA 10/01/18 5.000 5,353,500
........................................................................................................
2,000 Long Beach Finance Authority
Lease Revenue-Aquarium
of the South Pacific
(AMBAC Insured) Aaa AAA 11/01/15 5.500 2,258,480
........................................................................................................
8,475 Los Angeles County Sanitation
Districts Financing Authority
Revenue-Capital Project-
Series A (FSA Insured) Aaa AAA 10/01/20 5.000 8,917,988
........................................................................................................
5,000 Los Angeles General
Obligation-Series A
(MBIA Insured) Aaa AAA 09/01/21 5.000 5,196,700
........................................................................................................
3,000 Los Angeles University School
District-Series A
(FSA Insured) Aaa AAA 07/01/20 5.250 3,234,810
........................................................................................................
7,000 Los Angeles Water & Power
Revenue-Power Systems-
Series A-A-1 (FSA Insured) Aaa AAA 07/01/21 5.250 7,459,550
........................................................................................................
3,000 Los Angeles Water & Power
Revenue-Power Systems-
Series A-SubSeries A-2
(MBIA Insured) Aaa AAA 07/01/16 5.000 3,257,790
........................................................................................................
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8
Insured Municipal Income Fund Inc.
Portfolio of Investments -- September 30, 2003 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
-------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-------------------------------------------------------------------------------------------------------
CALIFORNIA--(CONCLUDED)
$ 1,000 Marin Municipal Water
District Water Revenue
(AMBAC Insured) Aaa AAA 07/01/18 5.000% $1,063,300
........................................................................................................
7,000 Sacramento Municipal Utility
Revenue-Mud-Series R
(MBIA Insured) Aaa AAA 08/15/19 5.000 7,425,250
........................................................................................................
4,000 San Francisco City & County
Airport Commission
International Airport-
Second Series 27B
(FGIC Insured) Aaa AAA 05/01/15 5.250 4,409,480
........................................................................................................
67,738,918
-------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--1.39%
4,000 District of Columbia Hospital
Revenue-Medlantic
Healthcare-Series A
(Escrowed to Maturity)
(MBIA Insured) Aaa AAA 08/15/14 5.750 4,500,960
........................................................................................................
GEORGIA--1.01%
1,015 Columbus Building Authority
Lease Revenue-Series A
(FGIC Insured) Aaa AAA 01/01/16 5.250 1,143,184
........................................................................................................
2,000 Georgia Municipal Electric
Authority Power Revenue-
Series A (FSA Insured) Aaa AAA 01/01/18 5.000 2,134,140
........................................................................................................
3,277,324
-------------------------------------------------------------------------------------------------------
ILLINOIS--16.22%
8,400 Chicago O'Hare International
Airport Revenue-Second
Lien-Series A (MBIA Insured) Aaa AAA 01/01/15 6.375 9,067,632
........................................................................................................
3,000 Chicago O'Hare International
Airport Revenue-Second
Lien-Series B (MBIA Insured) Aaa AAA 01/01/15 5.500 3,069,420
........................................................................................................
7,325 Chicago Project & Refunding-
Series A (AMBAC Insured) Aaa AAA 01/01/42 5.000 7,349,685
........................................................................................................
1,000 Chicago Project & Refunding-
Series A (MBIA Insured) Aaa AAA 01/01/14 5.500 1,121,500
........................................................................................................
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 4,729,214
........................................................................................................
4,000 Illinois Development Finance
Authority Pollution Control
Revenue-Commonwealth
Edison Co. Project-Series D
(AMBAC Insured) Aaa AAA 03/01/15 6.750 4,373,280
........................................................................................................
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9
Insured Municipal Income Fund Inc.
Portfolio of Investments -- September 30, 2003 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
-------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-------------------------------------------------------------------------------------------------------
ILLINOIS--(CONCLUDED)
$ 4,500 Illinois Health Facilities
Authority Revenue-
Franciscan Sisters Health
Care-Series C (Escrowed to
Maturity) (MBIA Insured) Aaa AAA 09/01/18 5.750% $5,308,425
........................................................................................................
2,000 Illinois Sales Tax Revenue-
Series 2 (FGIC Insured) Aaa AAA 06/15/16 5.500 2,309,440
........................................................................................................
3,000 Kane McHenry Cook &
De Kalb Counties-United
School District No. 300
(MBIA Insured) Aaa AAA 12/01/15 5.500 3,383,730
........................................................................................................
5,000 Metropolitan Pier & Exposition
Authority-Illinois Dedicated
State Tax Capital Appreciation
Series A-2002
(FGIC Insured) Aaa AAA 06/15/10 6.650# 3,985,300
........................................................................................................
2,395 Metropolitan Pier & Exposition
Authority-Illinois Dedicated
State Tax-Pre-refunded-
Series A-2002
(FGIC Insured) Aaa AAA 12/15/23 5.500 2,707,069
........................................................................................................
4,850 Metropolitan Pier & Exposition
Authority-Illinois McCormick
Place Expansion-Series A
(MBIA Insured) Aaa AAA 06/15/42 5.250 4,994,287
........................................................................................................
52,398,982
-------------------------------------------------------------------------------------------------------
INDIANA--0.34%
1,000 Indiana University Revenue-
Student Fee-Series 0
(FGIC Insured) Aaa AAA 08/01/18 5.250 1,095,660
........................................................................................................
MAINE--2.52%
7,890 Maine Health & Higher
Educational Facilities
Authority Revenue-
Series A (Escrowed to
Maturity) (FSA Insured) Aaa AAA 07/01/23 5.500 8,098,006
........................................................................................................
30 Maine Health & Higher
Educational Facilities
Authority Revenue-
Series B (Pre-refunded
with U.S. Government
Securities to 07/01/04 @
102) (FSA Insured) Aaa AAA 07/01/24 7.000 31,941
........................................................................................................
8,129,947
-------------------------------------------------------------------------------------------------------
MASSACHUSETTS--5.37%
10,000 Massachusetts State Health &
Educational Facilities
Authority Revenue-
Massachusetts Institute
of Technology-Series L Aaa AAA 07/01/23 5.000 10,676,200
........................................................................................................
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10
Insured Municipal Income Fund Inc.
Portfolio of Investments-- September 30, 2003 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
-------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-------------------------------------------------------------------------------------------------------
MASSACHUSETTS--(CONCLUDED)
$ 2,800 MASSACHUSETTS WATER POLLUTION
ABATEMENT TRUST MWRA
PROGRAM-SERIES A AAA AAA 08/01/20 5.250% $3,021,424
........................................................................................................
3,390 Massachusetts Water Pollution
Abatement Trust Pool
Program Bonds-Series-8 Aaa AAA 08/01/17 5.000 3,655,776
........................................................................................................
17,353,400
-------------------------------------------------------------------------------------------------------
MICHIGAN--3.67%
4,475 Eastern Michigan University
Revenue-Series A
(FGIC Insured) Aaa AAA 06/01/19 5.000 4,764,174
........................................................................................................
2,880 Michigan Municipal Bond
Authority Clean Water
Revenue Fund Aaa AAA 10/01/19 5.250 3,143,088
........................................................................................................
3,625 Michigan Municipal Bond
Authority Clean Water
Revenue Revolving Fund Aaa AAA 10/01/18 5.250 3,960,784
........................................................................................................
11,868,046
-------------------------------------------------------------------------------------------------------
MINNESOTA--1.65%
5,015 Minneapolis & St. Paul
Metropolitan Airports
Commission Airport
Revenue-SubSeries A
(MBIA Insured) Aaa AAA 01/01/19 5.000 5,315,699
........................................................................................................
MISSOURI--1.63%
1,740 St. Louis Airport Revenue-
Capital Improvement
Project-Series A
(MBIA Insured) Aaa AAA 07/01/15 5.375 1,927,294
........................................................................................................
2,035 St. Louis Airport Revenue-
Capital Improvement
Project-Series A
(MBIA Insured) Aaa AAA 07/01/16 5.375 2,247,698
........................................................................................................
1,000 St. Louis Airport Revenue-
Capital Improvement
Project-Series A
(MBIA Insured) Aaa AAA 07/01/18 5.375 1,089,840
........................................................................................................
5,264,832
-------------------------------------------------------------------------------------------------------
NEVADA--3.64%
4,000 Washoe County Gas &
Water Facilities Revenue-
Sierra Pacific Power Co.
Project-Series B
(MBIA Insured) Aaa AAA 06/01/23 5.900 4,092,520
........................................................................................................
7,500 Washoe County Water
Facilities Revenue-Sierra
Pacific Power Co.
Project-Series A
(MBIA Insured) Aaa AAA 06/01/23 5.900 7,673,475
........................................................................................................
11,765,995
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
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11
Insured Municipal Income Fund Inc.
Portfolio of Investments -- September 30, 2003 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
-------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-------------------------------------------------------------------------------------------------------
NEW JERSEY--1.65%
$ 5,000 Salem County Industrial
Pollution Control Finance
Authority Revenue-Public
Service Electric & Gas-
Series D (MBIA Insured) Aaa AAA 10/01/29 6.550% $5,340,500
-------------------------------------------------------------------------------------------------------
NEW MEXICO--2.78%
8,850 Gallup Pollution Control
Revenue-Plains Electric
Generation (MBIA Insured) Aaa AAA 08/15/17 6.650 8,977,794
-------------------------------------------------------------------------------------------------------
NEW YORK--5.74%
2,920 New York State Dormitory
Authority Revenue-
Columbia University-
Series A Aaa AAA 07/01/16 5.125 3,237,696
........................................................................................................
3,000 New York State Dormitory
Authority Revenue-Sloan
Kettering Center-Series 1
(MBIA Insured) Aaa AAA 07/01/16 5.000 3,252,720
........................................................................................................
2,000 Long Island Power Authority
Electric System Revenue-
Series A (FSA Insured) Aaa AAA 12/01/22 5.125 2,085,840
........................................................................................................
5,000 Metropolitan Transportation
Authority Revenue-Series A
(AMBAC Insured) Aaa AAA 11/15/16 5.500 5,650,050
........................................................................................................
4,000 Metropolitan Transportation
Authority Revenue-Series A
(FGIC Insured) Aaa AAA 11/15/17 5.000 4,326,720
........................................................................................................
18,553,026
-------------------------------------------------------------------------------------------------------
NORTH CAROLINA--5.55%
15,000 North Carolina Eastern
Municipal Power Agency
Power System Revenue-
(AMBAC Insured) Aaa AAA 01/01/18 6.000 17,926,050
-------------------------------------------------------------------------------------------------------
OHIO--0.66%
1,870 Ohio Water Development
Authority-Pollution Control
Facilities Revenue-Water
Control Loan Fund-Water
Quality Series
(MBIA Insured) Aaa AAA 06/01/13 5.500 2,118,018
-------------------------------------------------------------------------------------------------------
PENNSYLVANIA--3.86%
6,130 North Wales Water Authority-
Series A (FGIC Insured) Aaa AAA 11/01/16 5.500 6,150,781
........................................................................................................
1,000 Philadelphia General
Obligation (FSA Insured) Aaa AAA 03/15/13 5.250 1,104,910
........................................................................................................
1,000 Philadelphia General
Obligation (FSA Insured) Aaa AAA 03/15/14 5.250 1,103,260
........................................................................................................
3,750 Philadelphia School District-
Series A (MBIA Insured) Aaa AAA 04/01/16 5.250 4,118,437
........................................................................................................
12,477,388
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
12
Insured Municipal Income Fund Inc.
Portfolio of Investments -- September 30, 2003 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
-------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-------------------------------------------------------------------------------------------------------
RHODE ISLAND--6.15%
$10,000 Rhode Island Depositors
Economic Protection Corp.
Special Obligation-Series A
(Escrowed to Maturity)
(FSA Insured) NR AAA 08/01/14 5.750% $11,914,500
........................................................................................................
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 7,959,840
........................................................................................................
19,874,340
-------------------------------------------------------------------------------------------------------
SOUTH CAROLINA--1.18%
2,625 Charleston County Hospital
Facilities Revenue-Bon
Secours Health System
Project (Escrowed to
Maturity) (FSA Insured) Aaa AAA 08/15/25 5.625 2,685,611
........................................................................................................
1,000 Myrtle Beach Water & Sewer
Revenue System
(FGIC Insured) Aaa AAA 03/01/15 5.375 1,133,010
........................................................................................................
3,818,621
-------------------------------------------------------------------------------------------------------
TEXAS--27.52%
7,945 Bexar Metropolitan Water
District Waterworks System
Revenue-(MBIA Insured) Aaa AAA 05/01/22 5.875 8,582,348
........................................................................................................
2,000 Corpus Christi Utilities System
Revenue-Refunding &
Improvement (FSA Insured) Aaa AAA 07/15/17 5.250 2,194,520
........................................................................................................
2,120 Frisco Certificates Obligation
Series A (FGIC Insured) Aaa AAA 02/15/14 5.250 2,324,580
........................................................................................................
3,000 Harris County Toll Road
Sub-Lien (FGIC Insured) Aaa AAA 08/01/09 6.000 3,536,970
........................................................................................................
6,000 Houston Water & Sewer
System Revenue-Junior
Lien-Series A (FSA Insured) Aaa AAA 12/01/15 5.500 6,755,220
........................................................................................................
7,000 Houston Water & Sewer
System Revenue-Junior
Lien-Series C (FGIC Insured) Aaa AAA 12/01/22 5.250 7,364,350
........................................................................................................
2,000 Jefferson County
(FGIC Insured) Aaa AAA 08/01/20 5.250 2,145,940
........................................................................................................
10,000 Lubbock Health Facilities
Development Corp.-
Hospital Revenue-
Methodist Hospital-
Series A (Pre-refunded
with U.S. Government
Securities to 12/01/05 @
100) (AMBAC Insured) Aaa AAA 12/01/22 5.900 11,004,700
........................................................................................................
--------------------------------------------------------------------------------
13
Insured Municipal Income Fund Inc.
Portfolio of Investments -- September 30, 2003 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
-------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
-------------------------------------------------------------------------------------------------------
TEXAS--(CONCLUDED)
$ 9,005 Matagorda County Navigation
District No. 1 Revenue-
Houston Light & Power-
Series A (AMBAC Insured) Aaa AAA 03/01/27 6.700% $9,131,791
........................................................................................................
7,900 North Texas Turnpike Authority
Dallas North Turnpike
Systems Revenue-
Series A (AMBAC Insured) Aaa AAA 01/01/21 5.000 8,213,946
........................................................................................................
13,000 San Antonio Electric &
Gas Revenue-(Escrowed
to Maturity) Aaa AAA 02/01/19 5.650 15,227,680
........................................................................................................
155 San Antonio Water
Revenue (MBIA Insured) Aaa AAA 05/15/16 6.000 177,924
........................................................................................................
720 San Antonio Water
Revenue-(Pre-refunded
with U.S. Government
Securities to 05/15/07 @
100) (MBIA Insured) Aaa AAA 05/15/16 6.000 849,341
........................................................................................................
6,110 Texas A&M University
Fund Refunded Aaa NR 07/01/17 5.250 6,783,933
........................................................................................................
4,170 Williamson County General
Obligation (FSA Insured) Aaa AAA 02/15/17 5.500 4,629,826
........................................................................................................
88,923,069
-------------------------------------------------------------------------------------------------------
UTAH--2.07%
2,000 Utah Municipal Power
System Revenue-Payson
Power Project-Series A
(FSA Insured) Aaa AAA 04/01/17 5.250 2,204,340
........................................................................................................
2,085 Utah Municipal Power
System Revenue-Payson
Power Project-Series A
(FSA Insured) Aaa AAA 04/01/18 5.000 2,223,006
........................................................................................................
2,055 Utah Water Finance Agency
Revenue-Pooled Loan
Financing Program-Series C
(AMBAC Insured) Aaa NR 10/01/18 5.250 2,244,348
........................................................................................................
6,671,694
-------------------------------------------------------------------------------------------------------
WASHINGTON--6.13%
2,220 Cowlitz County School
District No. 458 Kelso Aaa NR 12/01/15 5.750 2,553,000
........................................................................................................
1,000 Cowlitz County School
District No. 458 Kelso Aaa NR 12/01/18 5.750 1,131,780
........................................................................................................
2,000 Energy Northwest Electric
Revenue-Columbia
Generator Station-
Series F (MBIA Insured) Aaa AAA 07/01/18 5.000 2,133,440
........................................................................................................
2,175 Energy Northwest Electric
Revenue-Project No. 1-
Series A (MBIA Insured) Aaa AAA 07/01/15 5.750 2,496,878
........................................................................................................
--------------------------------------------------------------------------------
14
Insured Municipal Income Fund Inc.
Portfolio of Investments -- September 30, 2003 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
-------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONCLUDED)
-------------------------------------------------------------------------------------------------------
WASHINGTON--(CONCLUDED)
$ 2,000 KING COUNTY SCHOOL DISTRICT
NO. 403 RENTON
(FGIC INSURED) AAA AAA 12/01/14 5.250% $2,192,800
........................................................................................................
5,000 Seattle Water
Systems Revenue Aaa AAA 09/01/19 5.000 5,313,250
........................................................................................................
3,625 Snohomish County School
District No. 015 Edmonds
(FGIC Insured) Aaa AAA 12/01/15 5.250 3,974,450
........................................................................................................
19,795,598
-------------------------------------------------------------------------------------------------------
WEST VIRGINIA--3.88%
10,000 Marshall County Pollution
Control Revenue-Ohio
Power Project-Series D
(MBIA Insured) Aaa AAA 04/01/22 5.900 10,233,900
........................................................................................................
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 2,299,105
........................................................................................................
12,533,005
-------------------------------------------------------------------------------------------------------
WISCONSIN--1.97%
1,500 Wisconsin State Health &
Educational Facilities
Authority Revenue-Bellin
Memorial Hospital
(AMBAC Insured) Aaa AAA 02/15/19 5.500 1,534,830
........................................................................................................
3,500 Wisconsin State Health &
Educational Facilities
Authority Revenue-
Hospital Sisters Health
Services (MBIA Insured) Aaa AAA 06/01/18 5.375 3,580,780
........................................................................................................
1,105 Ladysmith-Hawkins School
District Refunding
(FGIC Insured) Aaa NR 04/01/20 5.500 1,250,529
........................................................................................................
6,366,139
-------------------------------------------------------------------------------------------------------
Total Long-Term Municipal Bonds (cost--$398,623,354) 416,211,661
-------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL NOTES--15.92%
-------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--0.09%
300 District of Columbia
Revenue-Multi-Modal
Medlantic-Series B
(FSA Insured) VMIG-1 A-1+ 10/01/03 1.250* 300,000
-------------------------------------------------------------------------------------------------------
ILLINOIS--2.88%
7,000 Illinois Health Facilities
Authority Revenue-
Resurrection Health-
Series A (FSA Insured) VMIG-1 A-1 10/01/03 1.200* 7,000,000
........................................................................................................
--------------------------------------------------------------------------------
15
Insured Municipal Income Fund Inc.
Portfolio of Investments -- September 30, 2003 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
-------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL NOTES--(CONTINUED)
-------------------------------------------------------------------------------------------------------
ILLINOIS--(CONCLUDED)
$ 2,100 Illinois Health Facilities
Authority Revenue-
University of Chicago
Hospital Project-Series C
(MBIA Insured) VMIG-1 A-1+ 10/01/03 1.150%* $2,100,000
........................................................................................................
200 Illinois Health Facilities
Authority Revenue-
University of Chicago
Hospitals (MBIA Insured) VMIG-1 A-1 10/01/03 1.250* 200,000
........................................................................................................
9,300,000
-------------------------------------------------------------------------------------------------------
LOUISIANA--0.20%
650 Louisiana Public Facilities
Authority Revenue-
Industrial Development-
Kenner Hotel Ltd. P1 NR 10/01/03 1.150* 650,000
-------------------------------------------------------------------------------------------------------
MASSACHUSETTS--1.64%
5,300 Massachusetts State Health &
Education Facilities Authority
Revenue-Capital Assets
Program-Series D
(MBIA Insured) VMIG-1 NR 10/01/03 1.150* 5,300,000
-------------------------------------------------------------------------------------------------------
MISSOURI--0.69%
2,240 Missouri State Health &
Educational Facilities
Authority Health Facilities
Revenue-Cox Health
Systems (AMBAC Insured) VMIG-1 A-1 10/01/03 1.230* 2,240,000
-------------------------------------------------------------------------------------------------------
NEVADA--1.92%
6,200 CLARK COUNTY SCHOOL
DISTRICT-SERIES A
(FSA INSURED) VMIG-1 A-1+ 10/01/03 1.150* 6,200,000
-------------------------------------------------------------------------------------------------------
NEW YORK--7.26%
1,900 New York City General
Obligation-Series B-2-
SubSeries B-5
(MBIA Insured) VMIG-1 A-1+ 10/01/03 1.150* 1,900,000
........................................................................................................
2,800 New York City General
Obligation-Series H-
SubSeries H-2
(MBIA Insured) VMIG-1 A-1 10/01/03 1.150* 2,800,000
........................................................................................................
8,600 New York City Municipal
Water Finance Authority
Water & Sewer Systems
Revenue-Series A
(FGIC Insured) VMIG-1 A-1+ 10/01/03 1.200* 8,600,000
........................................................................................................
10,160 New York City Municipal
Water Finance Authority
Water & Sewer Systems
Revenue-Series C
(FGIC Insured) VMIG1 A-1+ 10/01/03 1.150* 10,160,000
.........................................................................................................
23,460,000
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
16
Insured Municipal Income Fund Inc.
Portfolio of Investments -- September 30, 2003 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
-------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL BONDS--(CONCLUDED)
-------------------------------------------------------------------------------------------------------
OKLAHOMA--0.62%
$ 1,990 Oklahoma Industrial
Authority Revenue-
Refunding Integris
Baptist-Series B
(MBIA Insured) VMIG-1 A-1+ 10/01/03 1.250%* $1,990,000
-------------------------------------------------------------------------------------------------------
PENNSYLVANIA--0.53%
1,700 PHILADELPHIA HOSPITALS &
HIGHER EDUCATION
FACILITIES AUTHORITY
REVENUE-CHILDRENS
HOSPITAL PROJECT-SERIES D
(MBIA INSURED) VMIG-1 A-1+ 10/01/03 1.220* 1,700,000
-------------------------------------------------------------------------------------------------------
TEXAS--0.09%
100 Bell County Health
Facilities Development
Corp. Revenue-Scott &
White Memorial Hospital-
Series B-2 (MBIA Insured) VMIG-1 A-1+ 10/01/03 1.250* 100,000
........................................................................................................
200 Harris County Health
Facilities Development
Corporate Revenue-
Methodist Hospital NR A-1+ 10/01/03 1.250* 200,000
........................................................................................................
300,000
-------------------------------------------------------------------------------------------------------
Total Short-Term Municipal Notes (cost--$51,440,000) 51,440,000
-------------------------------------------------------------------------------------------------------
Total Investments (cost--$450,063,354)--144.75% 467,651,661
........................................................................................................
Other assets in excess of other liabilities--1.68% 5,432,427
........................................................................................................
Liquidation value of Auction Preferred Shares--(46.43%) (150,000,000)
........................................................................................................
Net Assets applicable to common shareholders--100.00% $323,084,088
-------------------------------------------------------------------------------------------------------
* 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 September 30, 2003.
# 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
--------------------------------------------------------------------------------
17
Insured Municipal Income Fund Inc.
Statement of Assets and Liabilities -- September 30, 2003
(unaudited)
ASSETS:
Investments in securities, at value (cost--$450,063,354) $467,651,661
--------------------------------------------------------------------------------
Cash 35,325
.................................................................................
Interest receivable 5,914,658
.................................................................................
Other assets 3,144
.................................................................................
Total assets 473,604,788
.................................................................................
LIABILITIES:
Payable to investment advisor and administrator 266,797
.................................................................................
Dividends payable to auction preferred shareholders 38,160
.................................................................................
Accrued expenses and other liabilities 215,743
.................................................................................
Total liabilities 520,700
.................................................................................
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 $323,084,088
.................................................................................
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 2,805,296
.................................................................................
Accumulated net realized loss from investment transactions (9,193)
.................................................................................
Net unrealized appreciation of investments 17,588,307
.................................................................................
Net assets applicable to common shareholders $323,084,088
.................................................................................
Net asset value per common share ($323,084,088 applicable
to 20,628,363 common shares outstanding) $15.66
--------------------------------------------------------------------------------
See accompanying notes to financial statements
--------------------------------------------------------------------------------
18
Insured Municipal Income Fund Inc.
Statement of Operations
For the Six
Months Ended
September 30,
2003
(unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $11,005,288
.................................................................................
EXPENSES:
Investment advisory and administration fees 2,132,133
.................................................................................
Auction Preferred Shares expenses 168,944
.................................................................................
Custody and accounting 132,218
.................................................................................
Reports and notices to shareholders 30,275
.................................................................................
Professional fees 30,132
.................................................................................
Transfer agency fees 5,390
.................................................................................
Directors' fees 4,340
.................................................................................
Other expenses 9,484
.................................................................................
2,512,916
.................................................................................
Less: Fee waivers from investment advisor and administrator (362,019)
.................................................................................
Net expenses 2,150,897
.................................................................................
Net investment income 8,854,391
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES:
Net realized gains from investment transactions 5,571,599
.................................................................................
Net change in unrealized appreciation/depreciation of investments (7,010,602)
.................................................................................
Net realized and unrealized loss from investment activities (1,439,003)
.................................................................................
Dividends to auction preferred shareholders from net
investment income (727,505)
.................................................................................
Net increase in net assets applicable to common shareholders
resulting from operations $6,687,883
--------------------------------------------------------------------------------
See accompanying notes to financial statements
--------------------------------------------------------------------------------
19
Insured Municipal Income Fund Inc.
Statement of Changes in Net Assets Applicable to
Common Shareholders
For the Six
Months Ended For the
September 30, 2003 Year Ended
(unaudited) March 31, 2003
--------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $8,854,391 $20,080,569
.................................................................................
Net realized gains from investment transactions 5,571,599 6,118,115
.................................................................................
Net change in unrealized appreciation/
depreciation of investments (7,010,602) 5,616,365
.................................................................................
Dividends to auction preferred shareholders
from net investment income (727,505) (1,978,974)
.................................................................................
Net increase in net assets applicable to
common shareholders resulting from operations 6,687,883 29,836,075
.................................................................................
DIVIDENDS TO COMMON SHAREHOLDERS FROM:
Net investment income (8,663,913) (17,327,825)
.................................................................................
Net increase (decrease) in net assets applicable
to common shareholders (1,976,030) 12,508,250
.................................................................................
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period 325,060,118 312,551,868
.................................................................................
End of period (including undistributed net
investment income of $2,805,296 and $3,342,323,
respectively) $323,084,088 $325,060,118
--------------------------------------------------------------------------------
See accompanying notes to financial statements
--------------------------------------------------------------------------------
20
Insured Municipal Income Fund Inc.
Notes to Financial Statements (unaudited)
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 the Fund's management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates. The
following is a summary of significant accounting policies:
VALUATION OF INVESTMENTS--The Fund calculates its net asset value based on the
current market value, where available, for its portfolio securities. The Fund
normally obtains market values for its securities from independent pricing
sources and broker-dealers. Independent pricing sources may use reported last
sale prices, current market quotations or valuations from computerized "matrix"
systems that derive values based on comparable securities. 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 auction preferred shares. The dividend rate on the common
stock is adjusted as necessary to reflect the earnings rate of the Fund.
Dividends and distributions to common shareholders are recorded on the
ex-dividend date. Dividends to auction preferred shareholders are accrued daily.
The amount of dividends from net investment income and distributions from net
realized capital gains is determined in accordance with federal income tax
regulations, which may differ from accounting principles generally accepted in
the United States. These "book/tax" differences are either considered temporary
or permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
--------------------------------------------------------------------------------
21
Insured Municipal Income Fund Inc.
Notes to Financial Statements (unaudited)
CONCENTRATION OF RISK
The Fund follows an investment policy of investing primarily in municipal
obligations of various states. Economic changes affecting those states and
certain of their public bodies and municipalities may affect the ability of the
issuers within those states to pay interest on, or repay principal of, municipal
obligations held by the Fund.
INVESTMENT ADVISOR AND ADMINISTRATOR
The Board has approved an investment advisory and administration contract
("Advisory Contract") with UBS Global Asset Management (US) Inc. ("UBS Global
AM") under which UBS Global AM serves as investment advisor and administrator of
the Fund. UBS Global AM is an indirect wholly owned asset management subsidiary
of UBS AG, an international diversified organization with headquarters in
Zurich, Switzerland and operations in many areas of the financial services
industry. In accordance with the Advisory Contract, the Fund pays UBS Global AM
an investment advisory and administration fee, which is accrued weekly and paid
monthly, at the annual rate of 0.90% of the Fund's average weekly net assets.
UBS Global AM has agreed to waive 0.20% of the advisory and administration fee,
so that the Fund's effective fee is 0.70% of average weekly net assets. This
waiver will continue indefinitely unless the Board agrees to any change. At
September 30, 2003, the Fund owed UBS Global AM $267,747 representing $344,246
for investment advisory and administration fees less fee waivers of $76,499. For
the six months ended September 30, 2003, UBS Global AM waived $362,019 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 September 30, 2003.
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.
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. As of the end of November 2003, dividend periods for Series B and C are
expected to be reset every 7 days as well. Dividend rates ranged from 0.65% to
1.25% for the six months ended September 30, 2003.
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.
--------------------------------------------------------------------------------
22
Insured Municipal Income Fund Inc.
Notes to Financial Statements (unaudited)
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
auction preferred shares will vote separately as a class on certain matters, as
required by law. The holders of the auction preferred shares have the right to
elect two directors of the Fund.
The redemption of the Fund's auction preferred shares is outside of the control
of the Fund because it is redeemable upon the occurrence of an event that is not
solely within the control of the Fund.
It is anticipated that the Fund will issue additional shares of Auction
Preferred Shares in December 2003. All shares are expected to have terms similar
to those of the existing APS.
FEDERAL TAX STATUS
For federal income tax purposes, at September 30, 2003, the components of net
unrealized appreciation of investments were as follows:
Gross appreciation (from investments having
an excess value over cost) ..................................... $19,431,089
Gross depreciation (from investments having
an excess of cost over value) .................................. (1,842,782)
-----------
Net unrealized appreciation of investments ....................... $17,588,307
===========
For the six months ended September 30, 2003, total aggregate purchases and sales
of portfolio securities, excluding short-term securities, were $113,462,643 and
$159,175,657, respectively.
The Fund intends to distribute substantially all of its tax-exempt income and
any taxable income and to comply with the other requirements of the Internal
Revenue Code applicable to regulated investment companies. Accordingly, no
provision for federal income taxes is required. In addition, by distributing
during each calendar year substantially all of its net investment income,
realized capital gains and certain other amounts, if any, the Fund intends not
to be subject to a federal excise tax.
The tax character of distributions paid during the fiscal years ended March 31,
2003 and March 31, 2002 were as follows:
Distributions paid from: 2003 2002
----------- -----------
Tax-exempt income .................................. $19,306,799 $18,703,218
----------- -----------
The tax character of distributions paid and the components of accumulated
earnings (deficit) on a tax basis for the current fiscal year will be calculated
for the portfolio after the portfolio's fiscal year end at March 31, 2004.
--------------------------------------------------------------------------------
23
Insured Municipal Income Fund Inc.
Financial Highlights
Selected data for a share of common stock outstanding throughout each period is
presented below:
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED MARCH 31,
SEPTEMBER 30, 2003 ---------------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $15.76 $15.15 $15.30 $14.54 $15.58 $15.40
...............................................................................................................................
Net investment income 0.43 0.97 1.01 1.04 1.04 1.02
...............................................................................................................................
Net realized and unrealized
gains (loss) from
investment transactions (0.07) 0.58 (0.26) 0.79 (1.05) 0.18
...............................................................................................................................
Common share equivalent of
dividends paid to auction
preferred shareholders from
net investment income (0.04) (0.10) (0.17) (0.31) (0.26) (0.25)
...............................................................................................................................
Net increase (decrease) from
operations applicable to
common shareholders 0.32 1.45 0.58 1.52 (0.27) 0.95
...............................................................................................................................
Dividends paid to common
shareholders from net
investment income (0.42) (0.84) (0.73) (0.76) (0.77) (0.77)
...............................................................................................................................
NET ASSET VALUE, END OF PERIOD $15.66 $15.76 $15.15 $15.30 $14.54 $15.58
...............................................................................................................................
MARKET VALUE, END OF PERIOD $14.03 $13.98 $13.42 $13.11 $12.00 $14.25
...............................................................................................................................
TOTAL INVESTMENT RETURN(1) 3.37% 10.61% 8.04% 16.02% (10.49)% 10.96%
...............................................................................................................................
RATIO TO AVERAGE NET ASSETS
ATTRIBUTABLE TO COMMON SHARES:
...............................................................................................................................
Total expenses, net of
waivers from advisor 1.33%* 1.41% 1.42% 1.44% 1.44% 1.46%
...............................................................................................................................
Total expenses, before
waivers from advisor 1.55%* 1.60% 1.61% 1.63% 1.63% 1.65%
...............................................................................................................................
Net investment income
before auction preferred
shares dividends 5.47%* 6.23% 6.57% 7.00% 7.05% 6.58%
...............................................................................................................................
Auction preferred shares dividends 0.45%* 0.61% 1.11% 2.10% 1.75% 1.60%
...............................................................................................................................
Net investment income available
to common shareholders, net
of waivers from advisor 5.02%* 5.62% 5.46% 4.90% 5.30% 4.98%
...............................................................................................................................
Net investment income available
to common shareholders,
before waivers from advisor 4.80%* 5.43% 5.27% 4.71% 5.11% 4.79%
...............................................................................................................................
SUPPLEMENTAL DATA:
...............................................................................................................................
Net assets applicable to
common shareholders,
end of period (000's) $323,084 $325,060 $312,552 $315,568 $299,876 $321,361
...............................................................................................................................
Portfolio turnover 26% 24% 14% 2% 8% 5%
...............................................................................................................................
Asset coverage per share
of auction preferred
shares, end of period $157,695 $158,353 $154,184 $155,189 $149,959 $157,120
------------------------------------------------------------------------------------------------------------------------------
* Annualized.
(1) Total investment return is calculated assuming a $10,000 purchase of common
stock at the current market price on the first day of each period reported
and a sale at the current market price on the last day of each period
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 and has not been annualized for the period less than one year.
Returns do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions.
--------------------------------------------------------------------------------
24
Insured Municipal Income Fund Inc.
GENERAL INFORMATION (UNAUDITED)
THE FUND
Insured Municipal Income Fund Inc. (the "Fund") is a diversified, closed-end
management investment company whose shares trade on the New 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 had over $65.0 billion in assets under
management as of October 31, 2003.
INVESTMENT POLICY CHANGE
In July 2003, the Fund's Board approved a change in investment policy. The Fund
may now invest in securities whose maturities are less than 10 years at the time
of purchase. Prior to this change, the Fund had a policy of investing
substantially all of its assets in municipal obligations having maturities in
excess of 10 years at the time of purchase.
PROXY VOTING POLICIES AND PROCEDURES
You may obtain a description of the Fund's proxy voting policies and procedures,
without charge, upon request by contacting the Fund directly at 1-800-647-1568
or online on the Fund's Web site www.ubs.com/ubsglobalam-proxy.
SHAREHOLDER INFORMATION
The Fund's NYSE trading symbol is "PIF." Comparative net asset value and market
price information about the Fund is published weekly in THE WALLSTREET JOURNAL,
THE NEW YORK TIMES and BARRON'S, as well as in numerous other publications.
An annual meeting of shareholders of the Fund was held on August 12, 2003
(reconvened from July 17, 2003). At the meeting Margo N. Alexander, Richard Q.
Armstrong, David J. Beaubien, Richard R. Burt, Meyer Feldberg, Frederic V.
Malek, Carl W. Schafer, Brian M. Storms and William D. White were elected to
serve as directors until the next annual meeting of shareholders, or until their
successors are elected and qualified or until they resign or are otherwise
removed. The shares were voted as indicated below:
--------------------------------------------------------------------------------
25
Insured Municipal Income Fund Inc.
COMMON STOCK AND APS SHARES VOTING AS A SINGLE CLASS
SHARES
TO VOTE FOR OR WITHHOLD AUTHORITY SHARES WITHHOLD
IN THE ELECTION OF: VOTED FOR AUTHORITY
--------------------------------------------------------------------------------
Richard Q. Armstrong 19,421,846.2340 385,527.4288
David J. Beaubien 19,425,933.2340 381,440.4288
Richard R. Burt 19,426,140.2340 381,233.4288
Frederic V. Malek 19,415,928.2340 391,445.4288
Carl W. Schafer 19,430,655.2340 376,718.4288
Brian M. Storms 19,442,809.2340 364,564.4288
William D. White 19,419,647.2340 387,726.4288
--------------------------------------------------------------------------------
AUCTION PREFERRED SHARES
SHARES
TO VOTE FOR OR WITHHOLD AUTHORITY SHARES WITHHOLD
IN THE ELECTION OF: VOTED FOR AUTHORITY
--------------------------------------------------------------------------------
Margo N. Alexander 2,612 0
Meyer Feldberg 2,612 0
--------------------------------------------------------------------------------
Broker non-votes were as follows: common stock--823,601.3372 shares; and Auction
Preferred Shares--388 shares.
Subsequent to the shareholder meeting, Mr. Malek resigned from the Fund's board.
DIVIDEND REINVESTMENT PLAN
The Fund's Board has established a Dividend Reinvestment Plan (the "Plan") under
which all common shareholders whose shares are registered in their own names, or
in the name of UBS Financial Services Inc. or its nominee, will have all
dividends and other distributions on their shares of common stock automatically
reinvested in additional shares of common stock, unless such common shareholders
elect to receive cash.Common shareholders who elect to hold their shares in the
name of another broker or nominee should contact such broker or nominee to
determine whether, or how, they may participate in the Plan.The ability of such
shareholders to participate in the Plan may change if their shares are
transferred into the name of another broker or nominee.
A common shareholder may elect not to participate in the Plan or may terminate
participation in the Plan at any time without penalty, and common shareholders
who have previously terminated participation in the Plan may rejoin it at any
time. Changes in elections must be made in writing to the Fund's transfer agent
and should include the shareholder's name and address as they appear on the
share certificate or in the transfer agent's records. An election to terminate
participation in the Plan, until such election is changed, will be deemed an
election by a common shareholder to take all subsequent distributions in cash.
An election will be effective only for distributions declared and having a
record date at least ten days after the date on which the election is received.
--------------------------------------------------------------------------------
26
Insured Municipal Income Fund Inc.
GENERAL INFORMATION (UNAUDITED) (CONCLUDED)
DIVIDEND REINVESTMENT PLAN (CONCLUDED)
Additional shares of common stock acquired under the Plan will be purchased in
the open market, on the NYSE or otherwise, at prices that may be higher or lower
than the net asset value per share of the common stock at the time of the
purchase. The number of shares of common stock purchased with each dividend will
be equal to the result obtained by dividing the amount of the dividend payable
to a particular shareholder by the average price per share (including applicable
brokerage commissions) that the transfer agent was able to obtain in the open
market. The Fund will not issue any new shares of common stock in connection
with the Plan. There currently is no charge to participants for reinvesting
dividends or other distributions. The transfer agent's fees for handling the
reinvestment of distributions will be paid by the Fund. However, each
participant pays a pro rata share of brokerage commissions incurred with respect
to the transfer agent's open market purchases of common stock in connection with
the reinvestment of distributions. The automatic reinvestment of dividends and
other distributions in shares of common stock does not relieve participants of
any income tax that may be payable on such distributions.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan with respect to any
dividend or other distribution if notice of the change is sent to Plan
participants at least 30 days before the record date for such distribution. The
Plan also may be amended or terminated by the transfer agent by at least 30
days' written notice to all Plan participants. Additional information regarding
the Plan may be obtained from, and all correspondence concerning the Plan should
be directed to, the transfer agent at PFPC Inc., P.O. Box 43027, Providence,
Rhode Island 02940-3027. For further information regarding the Plan, you may
also contact the transfer agent directly at 1-800-331-1710.
--------------------------------------------------------------------------------
27
(This page has been left blank intentionally.)
Directors
Brian M. Storms Richard R. Burt
CHAIRMAN
Meyer Feldberg
Margo N. Alexander
Carl W. Schafer
Richard Q. Armstrong
William D. White
David J. Beaubien
PRINCIPAL OFFICERS
Joseph A. Varnas Elbridge T. Gerry III
PRESIDENT VICE PRESIDENT
Amy R. Doberman W. Douglas Beck
VICE PRESIDENT AND SECRETARY VICE PRESIDENT
Paul H. Schubert
VICE PRESIDENT AND TREASURER
INVESTMENT ADVISOR AND
ADMINISTRATOR
UBS Global Asset Management (US) Inc.
51 West 52nd Street
New York, New York 10019-6114
THE FINANCIAL INFORMATION INCLUDED HEREIN IS TAKEN FROM THE RECORDS OF THE FUND
WITHOUT EXAMINATION BY INDEPENDENT AUDITORS WHO DO NOT EXPRESS AN OPINION
THEREON.
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940 THAT FROM TIME TO TIME THE FUND MAY PURCHASE SHARES OF ITS
COMMON STOCK IN THE OPEN MARKET AT MARKET PRICES.
THIS REPORT IS SENT TO THE SHAREHOLDERS OF THE FUND FOR THEIR INFORMATION. IT IS
NOT A PROSPECTUS, CIRCULAR OR REPRESENTATION INTENDED FOR USE IN THE PURCHASE OR
SALE OF SHARES OF THE FUND OR OF ANY SECURITIES MENTIONED IN THIS REPORT.
(C) 2003 UBS GLOBAL ASSET MANAGEMENT (US) INC. ALL RIGHTS RESERVED.
[UBS LOGO]
UBS GLOBAL ASSET MANAGEMENT (US) INC.
51 West 52nd Street
New York, New York 10019
ITEM 2. CODE OF ETHICS.
Form N-CSR disclosure requirement not applicable to this filing of a semi-annual
report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Form N-CSR disclosure requirement not applicable to this filing of a semi-annual
report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
ITEM 6. [RESERVED BY SEC FOR FUTURE USE. ]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED - END
MANAGEMENT INVESTMENT COMPANIES.
Form N-CSR disclosure requirement not applicable to this filing of a semi-annual
report.
ITEM 8. [RESERVED BY SEC FOR FUTURE USE. ]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company
Act of 1940, as amended) are effective based on their evaluation of
these controls and procedures as of a date within 90 days of the filing
date of this document.
(b) The registrant's principal executive officer and principal financial
officer are aware of no changes in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal half-year that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 10. EXHIBITS.
(a) (1) Code of Ethics - Form N-CSR disclosure requirement not applicable
to this filing of a semi-annual report.
(a) (2) Certifications of principal executive officer and principal
financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 is attached hereto as Exhibit EX-99.CERT.
(b) Certifications of principal executive officer and principal financial
officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is
attached hereto as Exhibit EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
INSURED MUNICIPAL INCOME FUND INC.
By: /s/ Joseph A. Varnas
---------------------
Joseph A. Varnas
President
Date: DECEMBER 8, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Joseph A. Varnas
---------------------
Joseph A. Varnas
President
Date: DECEMBER 8, 2003
By: /s/ Paul H. Schubert
---------------------
Paul H. Schubert
Treasurer
Date: DECEMBER 8, 2003