[Graphic Omitted] UBS
Global Asset Management
Insured Municipal Income Fund Inc.
Semiannual Report
September 30, 2002
Insured Municipal Income Fund Inc.
November 14, 2002
DEAR SHAREHOLDER,
We present you with the semiannual report for Insured Municipal Income Fund Inc.
for the six months ended September 30, 2002.
AN INTERVIEW WITH PORTFOLIO MANAGER WILLIAM VERONDA
Q: HOW DID THE FUND PERFORM DURING THE PERIOD RELATIVE TO ITS PEERS?
A: For the six months ended September 30, 2002, the Fund's net asset value
advanced 8.21% and its market price increased 11.36%, underperforming its
competitors as measured by the Lipper Insured Municipal Debt Funds
(Leveraged) Median. The Lipper Median's net asset value and market price grew
11.01% and 12.20%, respectively. The Fund's shorter average duration compared
to its peers was the primary contributor to its performance versus the
benchmark. (For more performance information, please refer to "Performance At
A Glance" on page 4.)
Q: COULD YOU DESCRIBE THE ECONOMIC ENVIRONMENT DURING THE PERIOD?
A: As the reporting period began, there were increasing signs that a sustained
economic rebound was taking place. This prompted the Federal Reserve Board
(the "Fed") to shift from an easing stance (to combat economic weakness) to a
neutral stance. The change in policy appeared warranted, as gross domestic
product (GDP) accelerated to a 5.0% growth rate during the first quarter of
2002. However, the uptick proved short-lived. Ongoing threats of terrorism,
turmoil in the Middle East, anemic corporate spending, waning consumer
confidence in light of the stock market's decline, and corporate accounting
scandals all took their toll. The end result--second quarter 2002 GDP growth
was a less-than-expected 1.3%. Although the third quarter figure came in at
4.0%, as of this writing, investors were already focusing on fourth quarter
GDP, since it may be an indicator as to whether a sustainable economic
recovery is likely.
Q: HOW DID THE BOND MARKET PERFORM DURING THE SIX MONTH PERIOD?
A: Given the uncertainties regarding the economy, the weak stock market, and
geopolitical concerns, the bond market rallied sharply during the period.
Investors
-------------------------
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
-------------------------
--------------------------------------------------------------------------------
UBS Global Asset Management 1
Insured Municipal Income Fund Inc.
were drawn to the relative safety and strong performance offered by fixed
income securities in general, and the municipal market participated in this
upswing.
Q: WHILE THE FUND GENERATED STRONG ABSOLUTE RETURNS, IT LAGGED ITS BENCHMARK
DURING THE PERIOD. WHAT WERE SOME OF THE FACTORS THAT LED TO THE FUND'S
RELATIVE UNDERPERFORMANCE?
A: To some extent, our goal of limiting the Fund's capital gains adversely
affected its results during the period. Based on the municipal market's
strong performance in recent years, nearly every security in the portfolio
has risen in price. To avoid locking in capital gains, we've tended to hold
on to our positions. Consequently, some of the bonds in the Fund's portfolio
have "aged" to the point where they have short maturities. With a shorter
duration than the benchmark, the Fund underperformed its peers in the falling
interest rate environment.
Q: HOW ARE YOU CURRENTLY POSITIONING THE FUND'S PORTFOLIO?
A: We are continuing to selectively focus on bonds that have longer durations,
typically those with maturities that more accurately reflect the municipal
market as a whole. This positioning has increased the Fund's flexibility to
purchase what we believe are attractively structured and priced municipal
securities. In particular, we're focusing on bonds with maturities in the 15-
to 20-year range, as we believe these issues offer a "sweet spot" in terms of
their risk/reward characteristics: while we give up a little bit of yield
versus 30-year issues, 15- to 20-year bonds are less volatile than their
longer-term counterparts.
Q: TO ILLUSTRATE YOUR INVESTMENT STRATEGY, PLEASE DESCRIBE SOME HOLDINGS THAT
YOU PURCHASED DURING THIS REPORTING PERIOD?
A: Our purchase of Chicago, Illinois insured bonds--Chicago Project-Ser.
A--which mature in 2042 and offer a 5% coupon, is one result of our focus on
longer duration securities. The timing of our purchase proved advantageous,
as these securities have already appreciated roughly 9% in value compared to
their issuance price (as of period end).
Post period-end, we purchased Georgia Municipal Electric Authority bonds. We
purchased a large block of these quality securities at an attractive price.
These bonds mature in 2018 and provide a 5% coupon.
Q: WERE THERE ANY SECTORS OF THE MARKET THAT YOU PLACED MORE EMPHASIS ON DURING
THE PERIOD?
A: The Fund's portfolio tends to be highly diversified. When an overweight of a
particular sector occurs, it is due to the fact that we view it as being
highly attractive.
--------------------------------------------------------------------------------
2 UBS Global Asset Management
Insured Municipal Income Fund Inc.
Q: LASTLY, WHAT IS YOUR SHORT-TERM AND LONG-TERM OUTLOOK FOR THE MARKET?
A: We believe a modest economic expansion will take hold and that a double-dip
recession--while possible--is unlikely. Given a subdued growth rate, we feel
that interest rates will remain in a trading range--a change from the falling
rate environment we've seen over the past few years. As such, we anticipate
continuing our strategy of emphasizing longer-term securities at attractive
points on the yield curve. We will also continue to stress credit quality in
the portfolio to avoid any "contagion" from weakness in the corporate bond
markets.
Our ultimate objective in managing your investments is to help you successfully
meet your financial goals. We thank you for your continued support and welcome
any comments or questions you may have. For additional information on the UBS
Funds,* please contact your financial advisor or visit us at www.ubs.com.
Sincerely,
/s/ Brian M. Storms
-------------------
Brian M. Storms
PRESIDENT
Insured Municipal Income Fund Inc.
PRESIDENT AND CHIEF EXECUTIVE 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 six months ended September 30, 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.
* Mutual funds are sold by prospectus only. The prospectus for the fund contains
more complete information regarding risks, charges and expenses, and should
be read carefully before investing.
--------------------------------------------------------------------------------
UBS Global Asset Management 3
Insured Municipal Income Fund Inc.
PERFORMANCE AT A GLANCE
AVERAGE ANNUAL RETURN, PERIODS ENDED 9/30/02
NET ASSET VALUE RETURNS FUND LIPPER MEDIAN*
--------------------------------------------------------------------------------
6 Months 8.21% 11.01%
--------------------------------------------------------------------------------
1 Year 8.76 10.84
--------------------------------------------------------------------------------
3 Years 8.22 10.08
--------------------------------------------------------------------------------
5 Years 6.36 6.70
--------------------------------------------------------------------------------
Since Inception 6/8/93* 6.06 6.96
--------------------------------------------------------------------------------
MARKET PRICE RETURNS FUND LIPPER MEDIAN*
--------------------------------------------------------------------------------
6 Months 11.36% 12.20%
--------------------------------------------------------------------------------
1 Year 13.77 12.08
--------------------------------------------------------------------------------
3 Years 11.29 11.26
--------------------------------------------------------------------------------
5 Years 7.68 6.64
--------------------------------------------------------------------------------
Since Inception 6/8/93* 5.77 6.84
--------------------------------------------------------------------------------
* Inception returns for Lipper Insured Municipal Debt Funds (Leveraged) Median
are shown as of nearest month-end of the Fund's inception: May 31, 1993.
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 returns for
periods of one year or less have not been annualized.
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 9/30/02
--------------------------------------------------------------------------------
Market Price $14.51
--------------------------------------------------------------------------------
Net Asset Value $15.96
--------------------------------------------------------------------------------
12-Mo. Dividend (ended 9/30/02) $0.790
--------------------------------------------------------------------------------
September 2002 Dividend $0.070
--------------------------------------------------------------------------------
Market Yield** 5.79%
--------------------------------------------------------------------------------
NAV Yield** 5.26%
--------------------------------------------------------------------------------
IPO Yield** 5.60%
--------------------------------------------------------------------------------
** Market yield is calculated by multiplying the September dividend by 12 and
by dividing by the month-end market price. NAV yield is calculated by
multiplying the month-end dividend by 12 and by dividing by the month-end
net asset value. IPO yield is calculated by multiplying the month-end
dividend by 12 and dividing by the initial public offering price. Prices and
yields will vary.
--------------------------------------------------------------------------------
4 UBS Global Asset Management
Insured Municipal Income Fund Inc.
PORTFOLIO STATISTICS
CHARACTERISTICS 9/30/02 3/31/02 9/30/01
--------------------------------------------------------------------------------------------------
Net Assets Applicable to
Common Shareholders (mm) $329.3 $312.6 $318.5
--------------------------------------------------------------------------------------------------
Weighted Average Maturity* 12.9 yrs 12.3 yrs 13.0 yrs
--------------------------------------------------------------------------------------------------
Weighted Average Duration* 3.2 yrs 3.9 yrs 3.5 yrs
--------------------------------------------------------------------------------------------------
Weighted Average Coupon* 5.5% 5.4% 5.8%
--------------------------------------------------------------------------------------------------
AMT Paper** 0% 0% 0%
--------------------------------------------------------------------------------------------------
Leverage** 31.0% 32.0% 32.0%
--------------------------------------------------------------------------------------------------
Callable/Maturing within
Five Years* 26.5% 30.5% 31.1%
--------------------------------------------------------------------------------------------------
Callable/Maturing beyond
Five Years* 73.5% 69.5% 68.9%
--------------------------------------------------------------------------------------------------
CREDIT QUALITY*** 9/30/02 3/31/02 9/30/01
--------------------------------------------------------------------------------------------------
AAA/Aaa 140.5% 140.3% 142.9%
--------------------------------------------------------------------------------------------------
SP-1/MIG-1 2.8 5.8 1.5
--------------------------------------------------------------------------------------------------
A1/P1 0.3 0.9 0.6
--------------------------------------------------------------------------------------------------
Other Assets in Excess
of Liabilities 2.0 1.0 2.1
--------------------------------------------------------------------------------------------------
Liquidation Value of
Auction Preferred Shares (45.6) (48.0) (47.1)
--------------------------------------------------------------------------------------------------
TOTAL 100.0% 100.0% 100.0%
--------------------------------------------------------------------------------------------------
TOP TEN STATES*** 9/30/02 3/31/02 9/30/01
--------------------------------------------------------------------------------------------------
Texas 27.0% Texas 27.2% Texas 25.4%
--------------------------------------------------------------------------------------------------
Illinois 17.7 Pennsylvania 14.9 Illinois 21.1
--------------------------------------------------------------------------------------------------
Pennsylvania 13.9 Illinois 13.2 Pennsylvania 16.0
--------------------------------------------------------------------------------------------------
Rhode Island 10.2 Rhode Island 10.6 Rhode Island 10.5
--------------------------------------------------------------------------------------------------
Indiana 6.7 Indiana 7.2 Nevada 8.2
--------------------------------------------------------------------------------------------------
Kentucky 5.7 Washington 6.9 Indiana 7.1
--------------------------------------------------------------------------------------------------
Washington 5.2 Kentucky 6.2 Kentucky 6.6
--------------------------------------------------------------------------------------------------
California 4.9 California 6.0 California 5.0
--------------------------------------------------------------------------------------------------
Alabama 4.6 Alabama 4.8 Alabama 4.8
--------------------------------------------------------------------------------------------------
Michigan 4.6 Louisiana 4.7 Louisiana 4.5
--------------------------------------------------------------------------------------------------
TOTAL 100.5% TOTAL 101.7% TOTAL 109.2%
--------------------------------------------------------------------------------------------------
TOP FIVE SECTORS*** 9/30/02 3/31/02 9/30/01
--------------------------------------------------------------------------------------------------
Water 28.9% Water 30.9% Water 33.0%
--------------------------------------------------------------------------------------------------
Power 27.1 Power 29.0 Power 26.3
--------------------------------------------------------------------------------------------------
Hospital 22.7 Hospital 22.9 Hospital 24.7
--------------------------------------------------------------------------------------------------
General Obligations 14.1 Sales Tax 14.8 Sales Tax 15.9
--------------------------------------------------------------------------------------------------
Sales Tax 13.4 General Obligations 12.1 General Obligations 14.0
--------------------------------------------------------------------------------------------------
TOTAL 106.2% TOTAL 109.7% TOTAL 113.9%
--------------------------------------------------------------------------------------------------
* 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 a percentage of net assets applicable to common shareholders as of the
dates indicated.
--------------------------------------------------------------------------------
UBS Global Asset Management 5
Insured Municipal Income Fund Inc.
Portfolio of Investments-- September 30, 2002 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
--------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--140.48%
--------------------------------------------------------------------------------------------------
ALABAMA--4.73%
$1,590 Alabama Water Pollution
Control Authority
Revolving Fund Loan
Series A (AMBAC Insured) Aaa AAA 08/15/17 6.750% $1,789,004
--------------------------------------------------------------------------------------------------
5,400 Birmingham Baptist Medical
Center-Special Care Facilities
Financing Authority Revenue
Series A (MBIA Insured) Aaa AAA 08/15/23 5.500 5,534,352
--------------------------------------------------------------------------------------------------
8,000 Jefferson County Sewer
Revenue-Series A
(FGIC Insured) Aaa AAA 02/01/27 5.375 8,262,880
---------------------------- ---------------------------------------------------------------------
15,586,236
--------------------------------------------------------------------------------------------------
CALIFORNIA--5.06%
4,000 California State Department
of Water Resources
Water Revenue
Series W (FSA Insured) Aaa AAA 12/01/14 5.500 4,778,280
--------------------------------------------------------------------------------------------------
30 California State General
Obligation (FGIC Insured) Aaa AAA 11/01/12 7.000 33,911
--------------------------------------------------------------------------------------------------
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 1,101,357
--------------------------------------------------------------------------------------------------
1,585 Contra Costa Water District
Water Revenue
Series F (FGIC Insured) Aaa AAA 10/01/13 6.000 1,608,965
--------------------------------------------------------------------------------------------------
2,000 Long Beach Finance Authority
Lease Revenue-Aquarium
of the South Pacific
(AMBAC Insured) Aaa AAA 11/01/15 5.500 2,314,020
--------------------------------------------------------------------------------------------------
2,250 Los Angeles Wastewater
System Revenue-Series A
(MBIA Insured) Aaa AAA 06/01/20 5.700 2,336,243
--------------------------------------------------------------------------------------------------
4,000 San Francisco City & County
Airport Commission
International Airport
Second Series 27B
(FGIC Insured) Aaa AAA 05/01/15 5.250 4,496,200
--------------------------------------------------------------------------------------------------
16,668,976
--------------------------------------------------------------------------------------------------
COLORADO--1.32%
5,000 E-470 Public Highway Authority
Revenue-Capital Appreciation
Series B (MBIA Insured) Aaa AAA 09/01/07 5.330@ 4,353,800
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
6 UBS Global Asset Management
Insured Municipal Income Fund Inc.
Portfolio of Investments-- September 30, 2002 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
--------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
--------------------------------------------------------------------------------------------------
DELAWARE--3.16%
$10,000 Delaware State Economic
Development Authority
Pollution Control Revenue
Delmarva Power-Series B
(MBIA Insured) Aaa AAA 06/01/21 5.900% $10,412,500
--------------------------------------------------------------------------------------------------
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 4,585,120
--------------------------------------------------------------------------------------------------
ILLINOIS--18.17%
8,000 Central Lake County Joint
Action Water Agency
Interim Water Revenue
(FGIC Insured) Aaa AAA 05/01/20 5.375 8,206,400
--------------------------------------------------------------------------------------------------
8,400 Chicago O'Hare International
Airport Revenue-Second Lien
Series A (MBIA Insured) Aaa AAA 01/01/15 6.375 9,257,388
--------------------------------------------------------------------------------------------------
3,000 Chicago O'Hare International
Airport Revenue-Second Lien
Series B (MBIA Insured) Aaa AAA 01/01/15 5.500 3,086,460
--------------------------------------------------------------------------------------------------
1,000 Chicago Project & Refunding
Series A (MBIA Insured) Aaa AAA 01/01/14 5.500 1,141,240
--------------------------------------------------------------------------------------------------
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 4,917,032
--------------------------------------------------------------------------------------------------
9,325 Chicago Project Series A
(AMBAC Insured) Aaa AAA 01/01/42 5.000 9,555,141
--------------------------------------------------------------------------------------------------
4,000 Illinois Development Finance
Authority Pollution Control
Revenue-Commonwealth
Edison Co. Project-Series D
(AMBAC Insured) Aaa AAA 03/01/15 6.750 4,517,600
--------------------------------------------------------------------------------------------------
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 5,334,120
--------------------------------------------------------------------------------------------------
2,000 Illinois Sales Tax Revenue
Series 2 (FGIC Insured) Aaa AAA 06/15/16 5.500 2,330,220
--------------------------------------------------------------------------------------------------
3,000 Kane McHenry Cook &
De Kalb Counties-United
School District No. 300
(MBIA Insured) Aaa AAA 12/01/15 5.500 3,421,500
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UBS Global Asset Management 7
Insured Municipal Income Fund Inc.
Portfolio of Investments-- September 30, 2002 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
--------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
--------------------------------------------------------------------------------------------------
ILLINOIS--(CONCLUDED)
$4,850 Metropolitan Pier & Exposition
Authority Illinois McCormick
Place Expansion-Series A
(MBIA Insured) Aaa AAA 06/15/42 5.250% $5,108,844
--------------------------------------------------------------------------------------------------
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 2,097,980
--------------------------------------------------------------------------------------------------
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 7.100 832,935
--------------------------------------------------------------------------------------------------
59,806,860
--------------------------------------------------------------------------------------------------
INDIANA--6.93%
2,500 Indiana Health Facilities
Finance Authority
Hospital Revenue
Columbus Regional
Hospital (FSA Insured) Aaa AAA 08/15/22 5.500 2,578,350
--------------------------------------------------------------------------------------------------
7,835 Indianapolis Gas & Utilities
Revenue-Series A
(FGIC Insured) Aaa AAA 06/01/21 5.375 8,032,834
--------------------------------------------------------------------------------------------------
12,000 Marion County Convention
Center and Recreational
Facilities Authority-Excise
Tax Reveune-Lease Rental-
Series A (AMBAC Insured) Aaa AAA 06/01/21 5.500 12,202,440
--------------------------------------------------------------------------------------------------
22,813,624
--------------------------------------------------------------------------------------------------
IOWA--1.46%
4,625 Ames Hospital Revenue
Mary Greeley Medical
Center Project
(AMBAC Insured) Aaa AAA 08/15/22 5.750 4,820,684
--------------------------------------------------------------------------------------------------
KENTUCKY--5.98%
17,530 Louisville & Jefferson County
Metropolitan Sewer District
Sewer & Drain System
Series A (Pre-refunded with
U.S. Government Securities
to 11/15/04 @ 102) 05/15/24 to 6.500 to
(AMBAC Insured) Aaa AAA 05/15/25 6.750 19,700,027
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
8 UBS Global Asset Management
Insured Municipal Income Fund Inc.
Portfolio of Investments-- September 30, 2002 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
--------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
--------------------------------------------------------------------------------------------------
LOUISIANA--1.12%
$1,710 Louisiana Public Facilities
Authority Revenue
Tulane University
Series A-1 (FGIC Insured) Aaa AAA 02/15/18 5.750% $1,761,386
--------------------------------------------------------------------------------------------------
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 1,937,226
--------------------------------------------------------------------------------------------------
3,698,612
--------------------------------------------------------------------------------------------------
MAINE--3.05%
4,785 Maine Health & Higher
Educational Facilities
Authority Revenue-Series A
(FSA Insured) Aaa AAA 07/01/23 5.500 5,178,231
--------------------------------------------------------------------------------------------------
3,105 Maine Health & Higher
Educational Facilities
Authority Revenue-Series A
(Escrowed to Maturity)
(FSA Insured) Aaa AAA 07/01/23 5.500 3,197,157
--------------------------------------------------------------------------------------------------
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 1,669,965
--------------------------------------------------------------------------------------------------
10,045,353
--------------------------------------------------------------------------------------------------
MASSACHUSETTS--0.74%
2,200 Massachusetts State
Construction Loan
Series D (MBIA Insured) Aaa AAA 08/01/20 5.375 2,419,450
--------------------------------------------------------------------------------------------------
MICHIGAN--1.94%
6,255 Michigan State Housing
Development Authority
Rental Housing Revenue
Series A (AMBAC Insured) Aaa AAA 04/01/23 5.900 6,394,424
--------------------------------------------------------------------------------------------------
NEVADA--4.27%
2,000 Clark County Sanitation
District (FGIC Insured) Aaa AAA 07/01/11 5.700 2,075,860
--------------------------------------------------------------------------------------------------
4,000 Washoe County Gas &
Water Facilities Revenue
Sierra Pacific Power Co.
Project-Series B
(MBIA Insured) Aaa AAA 06/01/23 5.900 4,165,000
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UBS Global Asset Management 9
Insured Municipal Income Fund Inc.
Portfolio of Investments-- September 30, 2002 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
--------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
--------------------------------------------------------------------------------------------------
NEVADA--(CONCLUDED)
$7,500 Washoe County Water
Facilities Revenue Sierra
Pacific Power Co.
Project-Series A
(MBIA Insured) Aaa AAA 06/01/23 5.900% $7,809,375
--------------------------------------------------------------------------------------------------
14,050,235
--------------------------------------------------------------------------------------------------
NEW HAMPSHIRE--1.56%
5,000 New Hampshire Higher
Educational & Health
Facilities Authority
Revenue Lakes Region
Hospital Association
(FGIC Insured) Aaa AAA 01/01/17 5.500 5,121,650
--------------------------------------------------------------------------------------------------
NEW JERSEY--1.68%
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 5,531,000
--------------------------------------------------------------------------------------------------
NEW MEXICO--4.29%
8,850 Gallup Pollution Control
Revenue-Plains Electric
Generation (MBIA Insured) Aaa AAA 08/15/17 6.650 9,057,090
--------------------------------------------------------------------------------------------------
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 5,066,412
--------------------------------------------------------------------------------------------------
14,123,502
--------------------------------------------------------------------------------------------------
NEW YORK--3.52%
2,000 Long Island Power Authority
Electric System Revenue-
Series A (FSA Insured) Aaa AAA 12/01/22 5.125 2,079,400
--------------------------------------------------------------------------------------------------
5,000 Metropolitan Transportation
Authority Revenue-
Series A (AMBAC Insured) Aaa AAA 11/15/16 5.500 5,735,850
--------------------------------------------------------------------------------------------------
2,115 New York City General
Obligation-Series J
(MBIA Insured) Aaa AAA 08/01/13 5.375 2,385,234
--------------------------------------------------------------------------------------------------
1,250 New York State Thruway
Authority-Highway & Bridge
Trust Fund-Series C
(FGIC Insured) Aaa AAA 04/01/10 5.250 1,397,575
--------------------------------------------------------------------------------------------------
11,598,059
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
10 UBS Global Asset Management
Insured Municipal Income Fund Inc.
Portfolio of Investments-- September 30, 2002 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
--------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
--------------------------------------------------------------------------------------------------
OHIO--1.68%
$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% $3,397,440
--------------------------------------------------------------------------------------------------
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 2,116,915
--------------------------------------------------------------------------------------------------
5,514,355
--------------------------------------------------------------------------------------------------
PENNSYLVANIA--14.36%
6,130 North Wales Water Authority-
Series A (FGIC Insured) Aaa AAA 11/01/16 5.500 6,357,239
--------------------------------------------------------------------------------------------------
16,435 Pennsylvania Intergovernmental
Cooperative Authority
Special Tax Revenue
Philadelphia Funding Program
(Pre-refunded with U.S.
Government Securities to
06/15/03 @ 100) 06/15/15 to 5.600 to
(MBIA Insured) Aaa AAA 06/15/23 5.625 16,913,989
--------------------------------------------------------------------------------------------------
2,675 Pennsylvania Intergovernmental
Cooperative Authority
Special Tax Reveune
Philadelphia Funding Program
(Pre-refunded with U.S.
Government Securities to
06/15/05 @ 100)
(FGIC Insured) Aaa AAA 06/15/14 7.000 3,044,043
--------------------------------------------------------------------------------------------------
2,000 Philadelphia General
Obligation 03/15/13 to
(FSA Insured) Aaa AAA 03/15/14 5.250 2,219,210
--------------------------------------------------------------------------------------------------
3,750 Philadelphia School District-
Series A (MBIA Insured) Aaa AAA 04/01/16 5.250 4,126,425
--------------------------------------------------------------------------------------------------
5,885 Philadelphia Water &
Wastewater Revenue
(FSA Insured) Aaa AAA 06/15/15 5.500 6,139,409
--------------------------------------------------------------------------------------------------
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 8,473,888
--------------------------------------------------------------------------------------------------
47,274,203
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UBS Global Asset Management 11
Insured Municipal Income Fund Inc.
Portfolio of Investments-- September 30, 2002 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
--------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
--------------------------------------------------------------------------------------------------
RHODE ISLAND--10.55%
$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% $14,649,460
--------------------------------------------------------------------------------------------------
10,000 Rhode Island Depositors
Economic Protection Corp.
Special Obligation-Series A
(Escrowed to Maturity)
(FSA Insured) Aaa AAA 08/01/14 5.750 12,046,000
--------------------------------------------------------------------------------------------------
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 8,031,380
--------------------------------------------------------------------------------------------------
34,726,840
--------------------------------------------------------------------------------------------------
SOUTH CAROLINA--2.40%
2,625 Charleston County Hospital
Facilities Revenue-Bon
Secours Health System Project
(Escrowed to Maturity)
(FSA Insured) Aaa AAA 08/15/25 5.625 2,761,658
--------------------------------------------------------------------------------------------------
5,000 South Carolina Public Service
Authority Revenue-Series A
(MBIA Insured) Aaa AAA 07/01/21 5.500 5,150,650
--------------------------------------------------------------------------------------------------
7,912,308
--------------------------------------------------------------------------------------------------
TENNESSEE--1.56%
5,000 Sullivan County Health
Educational & Housing Facilities
Board Revenue-Holston Valley
Health (MBIA Insured) Aaa AAA 02/15/20 5.750 5,140,050
--------------------------------------------------------------------------------------------------
TEXAS--27.80%
7,000 Austin Utilities System Revenue
(AMBAC Insured) Aaa AAA 11/15/16 5.750 7,037,450
--------------------------------------------------------------------------------------------------
7,945 Bexar Metropolitan Water
District Waterworks System
Revenue (MBIA Insured) Aaa AAA 05/01/22 5.875 8,662,434
--------------------------------------------------------------------------------------------------
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 6,432,956
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
12 UBS Global Asset Management
Insured Municipal Income Fund Inc.
Portfolio of Investments-- September 30, 2002 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
--------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
--------------------------------------------------------------------------------------------------
TEXAS--(CONCLUDED)
$7,720 Colorado River Municipal
Water District Water
Revenue (AMBAC Insured) Aaa AAA 01/01/21 5.150% $7,731,966
--------------------------------------------------------------------------------------------------
2,120 Frisco Certificates Obligation
Series A (FGIC Insured) Aaa AAA 02/15/14 5.250 2,356,316
--------------------------------------------------------------------------------------------------
3,000 Harris County Toll Road
Sub-Lien (FGIC Insured) Aaa AAA 08/01/09 6.000 3,538,980
--------------------------------------------------------------------------------------------------
6,000 Houston Water & Sewer
System Revenue-Junior
Lien-Series A (FSA Insured) Aaa AAA 12/01/15 5.500 6,838,020
--------------------------------------------------------------------------------------------------
7,000 Houston Water & Sewer
System Revenue-Junior
Lien-Series C (FGIC Insured) Aaa AAA 12/01/22 5.250 7,318,010
--------------------------------------------------------------------------------------------------
2,000 Jefferson County (FGIC Insured) Aaa AAA 08/01/20 5.250 2,157,640
--------------------------------------------------------------------------------------------------
3,620 Lower Colorado River
Authority Revenue-
Series B (FSA Insured) Aaa AAA 05/15/13 6.000 4,221,644
--------------------------------------------------------------------------------------------------
10,000 Lubbock Health Facilities
Developement 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 11,267,900
--------------------------------------------------------------------------------------------------
9,005 Matagorda County Navigation
District No. 1 Revenue-Houston
Light & Power-Series A
(AMBAC Insured) Aaa AAA 03/01/27 6.700 9,219,319
--------------------------------------------------------------------------------------------------
9,500 San Antonio Electric & Gas
Revenue-Capital
Appreciation-Series A
(Escrowed to Maturity)
(AMBAC Insured) Aaa AAA 02/01/05 3.280@ 9,050,270
--------------------------------------------------------------------------------------------------
155 San Antonio Water Revenue
(MBIA Insured) Aaa AAA 05/15/16 6.000 179,284
--------------------------------------------------------------------------------------------------
720 San Antonio Water Revenue
(Pre-refunded with U.S.
Government Securities to
05/15/07 @ 100)
(MBIA Insured) Aaa AAA 05/15/16 6.000 870,091
--------------------------------------------------------------------------------------------------
4,170 Williamson County General
Obligation (FSA Insured) Aaa AAA 02/15/17 5.500 4,652,052
--------------------------------------------------------------------------------------------------
91,534,332
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UBS Global Asset Management 13
Insured Municipal Income Fund Inc.
Portfolio of Investments-- September 30, 2002 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
--------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONCLUDED)
--------------------------------------------------------------------------------------------------
WASHINGTON--5.34%
$3,220 Cowlitz County
School District 12/01/15 to
No. 458 Kelso Aaa NR 12/01/18 5.750% $3,739,803
--------------------------------------------------------------------------------------------------
2,175 Energy Northwest Electric
Revenue-Project No. 1
Series A (MBIA Insured) Aaa AAA 07/01/15 5.750 2,531,309
--------------------------------------------------------------------------------------------------
2,000 King County School District
No. 403 Renton
(FGIC Insured) Aaa AAA 12/01/14 5.250 2,189,240
--------------------------------------------------------------------------------------------------
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 5,160,700
--------------------------------------------------------------------------------------------------
3,625 Snohomish County School
District No. 015 Edmonds
(FGIC Insured) Aaa AAA 12/01/15 5.250 3,967,997
--------------------------------------------------------------------------------------------------
17,589,049
--------------------------------------------------------------------------------------------------
WEST VIRGINIA--3.86%
10,000 Marshall County Pollution
Control Revenue-Ohio
Power Project-Series D
(MBIA Insured) Aaa AAA 04/01/22 5.900 10,360,300
--------------------------------------------------------------------------------------------------
2,245 West Virginia Water
Development Authority
Water Developement
Revenue Loan Program II
Series A-II (FSA Insured) Aaa AAA 11/01/29 5.750 2,357,362
--------------------------------------------------------------------------------------------------
12,717,662
--------------------------------------------------------------------------------------------------
WISCONSIN--2.56%
1,500 Wisconsin Health & Educational
Facilities Authority Revenue
Bellin Memorial Hospital
(AMBAC Insured) Aaa AAA 02/15/19 5.500 1,537,605
--------------------------------------------------------------------------------------------------
3,500 Wisconsin State Health &
Educational Facilities
Authority Revenue-Hospital
Sisters Health Services
(MBIA Insured) Aaa AAA 06/01/18 5.375 3,599,190
--------------------------------------------------------------------------------------------------
3,000 Wisconsin State Transportation
Revenue-Series A
(MBIA Insured) Aaa AAA 07/01/15 5.500 3,299,280
--------------------------------------------------------------------------------------------------
8,436,075
--------------------------------------------------------------------------------------------------
Total Long-Term Municipal Bonds (cost--$427,409,236) 462,574,986
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
14 UBS Global Asset Management
Insured Municipal Income Fund Inc.
Portfolio of Investments-- September 30, 2002 (unaudited)
PRINCIPAL
AMOUNT MOODY'S S&P MATURITY INTEREST
(000) RATING RATING DATES RATES VALUE
--------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL NOTES--3.07%
--------------------------------------------------------------------------------------------------
$100 Pinellas County Health
Facilities Authority Revenue
Pooled Hospital Loan
Program (AMBAC Insured) VMIG-1 A-1+ 10/01/02 2.000%* $100,000
--------------------------------------------------------------------------------------------------
MICHIGAN--2.74%
9,000 University of Michigan-Medical
Service Plan-Series A VMIG-1 A-1+ 10/01/02 2.100* 9,000,000
--------------------------------------------------------------------------------------------------
TENNESSEE--0.27%
900 Metropolitan Nashville Airport
Authority-Special Facilities
Revenue-American Airlines
Project-Series A NR A-1+ 10/01/02 2.000 *900,000
--------------------------------------------------------------------------------------------------
TEXAS--0.03%
100 Harris County Industrial
Development Corp.
Pollution Control Revenue VMIG-1 A-1+ 10/01/02 2.000* 100,000
--------------------------------------------------------------------------------------------------
Total Short-Term Municipal Notes (cost--$10,100,000) 10,100,000
--------------------------------------------------------------------------------------------------
Total Investments (cost--$437,509,236)--143.55% 472,674,986
--------------------------------------------------------------------------------------------------
Other assets in excess of liabilities--2.00% 6,589,272
--------------------------------------------------------------------------------------------------
Liquidation value of Auction Preferred Shares--(45.55%) (150,000,000)
--------------------------------------------------------------------------------------------------
Net assets applicable to common shareholders--100.00% $329,264,258
--------------------------------------------------------------------------------------------------
* 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, 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
--------------------------------------------------------------------------------
UBS Global Asset Management 15
Insured Municipal Income Fund Inc.
Statement of Assets and Liabilities-- September 30, 2002 (unaudited)
ASSETS:
Investments in securities, at value (cost--$437,509,236) $472,674,986
-------------------------------------------------------------------------------
Cash 209,580
-------------------------------------------------------------------------------
Interest receivable 7,136,069
-------------------------------------------------------------------------------
Other assets 8,395
-------------------------------------------------------------------------------
Total assets 480,029,030
-------------------------------------------------------------------------------
LIABILITIES:
Payable to investment advisor and administrator 303,961
-------------------------------------------------------------------------------
Dividends payable to preferred shareholders 61,164
-------------------------------------------------------------------------------
Accrued expenses and other liabilities 399,647
-------------------------------------------------------------------------------
Total liabilities 764,772
-------------------------------------------------------------------------------
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 $329,264,258
-------------------------------------------------------------------------------
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 2,988,821
-------------------------------------------------------------------------------
Accumulated net realized loss from investment transactions (11,589,991)
-------------------------------------------------------------------------------
Net unrealized appreciation of investments 35,165,750
-------------------------------------------------------------------------------
Net assets applicable to common shareholders $329,264,258
-------------------------------------------------------------------------------
Net asset value per common share ($329,264,258 applicable to
20,628,363 common shares outstanding) $15.96
-------------------------------------------------------------------------------
See accompanying notes to financial statements
--------------------------------------------------------------------------------
16 UBS Global Asset Management
Insured Municipal Income Fund Inc.
Statement of Operations
For the Six
Months Ended
September 30, 2002
(unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $12,392,724
--------------------------------------------------------------------------------
EXPENSES:
Investment advisory and administration fees 2,123,260
--------------------------------------------------------------------------------
Auction Preferred Shares expenses 254,891
--------------------------------------------------------------------------------
Custody and accounting 141,551
--------------------------------------------------------------------------------
Professional fees 35,224
--------------------------------------------------------------------------------
Reports and notices to shareholders 33,325
--------------------------------------------------------------------------------
Transfer agency fees 9,690
--------------------------------------------------------------------------------
Directors' fees 3,741
--------------------------------------------------------------------------------
Other expenses 24,611
--------------------------------------------------------------------------------
2,626,293
--------------------------------------------------------------------------------
Less: Fee waivers from investment advisor (294,897)
--------------------------------------------------------------------------------
Net expenses 2,331,396
--------------------------------------------------------------------------------
Net investment income 10,061,328
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES:
Net realized gains from investment transactions 182,286
--------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation of investments 16,183,206
--------------------------------------------------------------------------------
Net realized and unrealized gains from investment activities 16,365,492
--------------------------------------------------------------------------------
Dividends to preferred shareholders from net investment income (1,050,518)
--------------------------------------------------------------------------------
Net increase in net assets applicable to common shareholders
resulting from operations $25,376,302
--------------------------------------------------------------------------------
See accompanying notes to financial statements
--------------------------------------------------------------------------------
UBS Global Asset Management 17
Insured Municipal Income Fund Inc.
Statement of Changes in Net Assets Applicable to
Common Shareholders
For the Six
Months Ended For the Year
September 30, 2002 Ended
(unaudited) March 31, 2002
--------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $10,061,328 $ 20,805,391
--------------------------------------------------------------------------------------------------
Net realized gains from investment transactions 182,286 2,513,664
--------------------------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation
of investments 16,183,206 (7,763,702)
--------------------------------------------------------------------------------------------------
Dividends to preferred shareholders from net investment income (1,050,518) (3,512,387)
--------------------------------------------------------------------------------------------------
Net increase in net assets applicable to common shareholders
resulting from operations 25,376,302 12,042,966
--------------------------------------------------------------------------------------------------
DIVIDENDS TO COMMON SHAREHOLDERS FROM:
Net investment income (8,663,912) (15,058,705)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to
common shareholders 16,712,390 (3,015,739)
--------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period 312,551,868 315,567,607
--------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income
of $2,988,821 and $2,641,923, respectively) $329,264,258 $312,551,868
--------------------------------------------------------------------------------------------------
See accompanying notes to financial statements
--------------------------------------------------------------------------------
18 UBS Global Asset Management
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 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. The dividend rate on the common stock is
adjusted as necessary to reflect the performance of the Fund. 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 capi-
--------------------------------------------------------------------------------
UBS Global Asset Management 19
Insured Municipal Income Fund Inc.
Notes to Financial Statements (unaudited)
tal accounts based on their federal tax-basis treatment; temporary differences
do not require reclassification.
CONCENTRATION OF RISK
The Fund follows an investment policy of investing primarily in municipal
obligations of various states. Economic changes affecting those states and
certain of their public bodies and municipalities may affect the ability of the
issuers within those states to pay interest on, or repay principal of, municipal
obligations held by the Fund.
INVESTMENT ADVISOR AND ADMINISTRATOR
The Board has approved an investment advisory and administration contract
("Advisory Contract") with UBS Global Asset Management (US) Inc. ("UBS Global
AM") under which UBS Global AM serves as investment advisor and administrator of
the Fund. UBS Global AM is an indirect wholly owned asset management subsidiary
of UBS AG, an internationally diversified organization with headquarters in
Zurich, Switzerland and operations in many areas of the financial services
industry. In accordance with the Advisory Contract, the Fund pays UBS Global AM
an investment advisory and administration fee, which is accrued weekly and paid
monthly, at the annual rate of 0.90% of the Fund's average weekly net assets.
For the six months ended September 30, 2002, UBS Global AM voluntarily waived
$294,897 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, 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.
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 1.249% to 1.650% for the six months ended Septem-
ber 30, 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.
--------------------------------------------------------------------------------
20 UBS Global Asset Management
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
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, the components of net unrealized appreciation
of investments at September 30, 2002 were as follows:
Gross appreciation (investments having an excess value over cost).. $35,233,399
Gross depreciation (investments having an excess of cost
over value) ..................................................... (67,649)
-----------
Net unrealized appreciation of investments ........................ $35,165,750
===========
At September 30, 2002, the components of accumulated earnings on a tax basis
were substantially the same as for financial reporting purposes.
The tax character of distributions paid to shareholders during the period ended
September 30, 2002 and the fiscal year ended March 31, 2002, was tax-exempt
income.
For the six months ended September 30, 2002, total aggregate purchases and sales
of portfolio securities, excluding short-term securities, were $27,430,016 and
$19,978,636, 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, net realized capital gains and certain other amounts, if any,
the Fund intends not to be subject to a federal excise tax.
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.
--------------------------------------------------------------------------------
UBS Global Asset Management 21
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, 2002 ---------------------------------------------------
(UNAUDITED) 2002 2001 2000 1999 1998
----------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $15.15 $15.30 $14.54 $15.58 $15.40 $14.10
----------------------------------------------------------------------------------------------
Net investment income 0.49 1.01 1.04 1.04 1.02 1.03
----------------------------------------------------------------------------------------------
Net realized and unrealized
gains (losses) from
investment activities 0.79 (0.26) 0.79 (1.05) 0.18 1.30
----------------------------------------------------------------------------------------------
Common share equivalent of
dividends paid to preferred
shareholders from net
investment income (0.05) (0.17) (0.31) (0.26) (0.25) (0.26)
----------------------------------------------------------------------------------------------
Net increase (decrease) from
operations applicable to
common shareholders 1.23 0.58 1.52 (0.27) 0.95 2.07
----------------------------------------------------------------------------------------------
Dividends paid to common
shareholders from net
investment income (0.42) (0.73) (0.76) (0.77) (0.77) (0.77)
----------------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $15.96 $15.15 $15.30 $14.54 $15.58 $15.40
----------------------------------------------------------------------------------------------
MARKET VALUE,
END OF PERIOD $14.51 $13.42 $13.11 $12.00 $14.25 $13.56
----------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN(1) 11.36% 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 1.45%* 1.42% 1.44% 1.44% 1.46% 1.49%
----------------------------------------------------------------------------------------------
Total expenses, before
waivers from advisor 1.64%* 1.61% 1.63% 1.63% 1.65% 1.74%
----------------------------------------------------------------------------------------------
Net investment income before
preferred stock dividends 6.26%* 6.57% 7.00% 7.05% 6.58% 6.84%
----------------------------------------------------------------------------------------------
Preferred stock dividends 0.65%* 1.11% 2.10% 1.75% 1.60% 1.75%
----------------------------------------------------------------------------------------------
Net investment income
available to common
shareholders, net of
waivers from advisor 5.61%* 5.46% 4.90% 5.30% 4.98% 5.09%
----------------------------------------------------------------------------------------------
Net investment income
available to common
shareholders, before
waivers from advisor 5.42%* 5.27% 4.71% 5.11% 4.79% 4.84%
----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
----------------------------------------------------------------------------------------------
Net assets applicable to
common shareholders,
end of period (000's) $329,264 $312,552 $315,568 $299,876 $321,361 $317,761
----------------------------------------------------------------------------------------------
Portfolio turnover 4% 14% 2% 8% 5% 6%
----------------------------------------------------------------------------------------------
Asset coverage per share
of preferred stock,
end of period $159,755 $154,184 $155,189 $149,959 $157,120 $155,920
----------------------------------------------------------------------------------------------
* 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.
--------------------------------------------------------------------------------
22 UBS Global Asset Management
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 has over $71.4 billion in assets under
management as of October 31, 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 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:
--------------------------------------------------------------------------------
UBS Global Asset Management 23
Insured Municipal Income Fund Inc.
GENERAL INFORMATION (UNAUDITED)
INVESTMENT POLICY CHANGES (CONTINUED)
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.
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.
--------------------------------------------------------------------------------
24 UBS Global Asset Management
Insured Municipal Income Fund Inc.
GENERAL INFORMATION (UNAUDITED)
INVESTMENT POLICY CHANGES (CONTINUED)
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 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
--------------------------------------------------------------------------------
UBS Global Asset Management 25
Insured Municipal Income Fund Inc.
GENERAL INFORMATION (UNAUDITED)
INVESTMENT POLICY CHANGES (CONCLUDED)
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.
An annual meeting of shareholders of the Fund was held on July 18, 2002. At the
meeting Margo N. Alexander, Richard Q. Armstrong, David J. Beaubien, E. Garrett
Bewkes, Jr., Richard R. Burt, Meyer Feldberg, George W. Gowen, William W.
Hewitt, Jr., Morton L. Janklow, Frederic V. Malek, Carl W. Schafer 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. The shares
were voted as indicated below:
COMMON STOCK AND APS SHARES VOTING AS A SINGLE CLASS
SHARES
SHARES WITHHOLD
TO VOTE FOR OR WITHHOLD AUTHORITY IN THE ELECTION OF: VOTED FOR AUTHORITY
------------------------------------------------------------------------------------
Richard Q. Armstrong 19,847,112.49 199,676.94
David J. Beaubien 19,846,950.49 199,838.94
E. Garrett Bewkes, Jr. 19,845,882.49 200,906.94
Richard R. Burt 19,676,469.49 370,319.94
George W. Gowen 19,838,498.49 208,290.94
William W. Hewitt, Jr. 19,839,485.49 207,303.94
Morton L. Janklow 19,681,145.49 365,643.94
Frederic V. Malek 19,688,491.49 358,297.94
Carl W. Schafer 19,688,857.49 357,931.94
William D. White 19,689,270.49 357,518.94
------------------------------------------------------------------------------------
AUCTION PREFERRED SHARES
SHARES
SHARES WITHHOLD
TO VOTE FOR OR WITHHOLD AUTHORITY IN THE ELECTION OF: VOTED FOR AUTHORITY
------------------------------------------------------------------------------------
Margo N. Alexander 2,874 20
Meyer Feldberg 2,874 20
-------------------------------------------------------------------------------------
Broker non-votes were as follows: common stock--584,467.57 shares; and Auction
Preferred Shares--106 shares.
--------------------------------------------------------------------------------
26 UBS Global Asset Management
Insured Municipal Income Fund Inc.
GENERAL INFORMATION (UNAUDITED)
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.
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.
--------------------------------------------------------------------------------
UBS Global Asset Management 27
Insured Municipal Income Fund Inc.
GENERAL INFORMATION (UNAUDITED)
DIVIDEND REINVESTMENT PLAN (CONCLUDED)
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan with respect to any
dividend or other distribution if notice of the change is sent to Plan
participants at least 30 days before the record date for such distribution. The
Plan also may be amended or terminated by the transfer agent by at least 30
days' written notice to all Plan participants. Additional information regarding
the Plan may be obtained from, and all correspondence concerning the Plan should
be directed to, the transfer agent at PFPC Inc., P.O. Box 43027, Providence,
Rhode Island 02940-3027. For further information regarding the Plan, you may
also contact the transfer agent directly at 1-800-331-1710.
--------------------------------------------------------------------------------
28 UBS Global Asset Management
Insured Municipal Income Fund Inc.
DIRECTORS
E. Garrett Bewkes, Jr. George W. Gowen
CHAIRMAN William W. Hewitt, Jr.
Margo N. Alexander Morton L. Janklow
Richard Q. Armstrong Frederic V. Malek
David J. Beaubien Carl W. Schafer
Richard R. Burt William D. White
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.
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.
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) 2002 UBS GLOBAL ASSET MANAGEMENT (US) INC.
ALL RIGHTS RESERVED.
--------------------------------------------------------------------------------
UBS Global Asset Management
[Graphic Omitted] UBS
UBS GLOBAL ASSET MANAGEMENT (US) INC.
51 West 52nd Street
New York, NY 10019-6114