<PAGE>
PAINEWEBBER
PREMIER INSURED
MUNICIPAL INCOME
FUND INC.
ANNUAL REPORT
MARCH 31, 1995
<PAGE>
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May 15, 1995
Dear Shareholder,
During the year ended March 31, 1995, the United States economy exhibited steady
growth. In a series of monetary tightenings that began early in 1994, the
Federal Reserve Board raised the benchmark Federal Funds rate, the rate banks
charge each other for overnight borrowing, six times in 1994 for a total
increase of 2.5%. These increases, which were implemented to moderate economic
expansion and forestall inflation, triggered stock and bond market volatility
throughout most of 1994. The Federal Reserve tightened another 0.5% on February
1, 1995, increasing the Federal Funds rate to 6.0%.
MUNICIPAL MARKET OVERVIEW
The Federal Reserve's monetary tightening policy set off a turbulent year in
fixed income markets. In the municipal market, this meant falling bond prices
for most of the period. However, in the last quarter of the fiscal year the
municipal market rallied. For example, on February 3, 1994, the Bond Buyer's
Index (composed of 20 long-term municipal bonds rated 'A' or better) had an
average yield of 5.25%. This average climbed as high as 7.06% on November 17,
1994, before settling back to 6.07% on March 30, 1995. The Revenue Bond Index
(composed of 25 revenue bonds) showed similar volatility. On February 3, 1994,
it was 5.49%; by November 17, 1994 it climbed to 7.37% and settled back to 6.29%
on March 30, 1995. As municipal interest rates increased, the market value of
outstanding bonds decreased.
In early December 1994, the municipal market was shaken by the bankruptcy of
Orange County, California. None of our Funds owned any Orange County general
obligation bonds. Although the bankruptcy initially destabilized the municipal
market, investors ultimately concluded that the magnitude of the problem was
isolated, and that other municipalities that invested in derivatives had not
leveraged themselves to the extent Orange County did. Consequently, the market
regained investors' confidence, and put in a very strong performance during the
first three months of 1995.
Another source of positive momentum at the end of the fiscal period was the
so-called January effect. Each year, large amounts of money are returned to
investors on January 1st in the form of interest payments, normal maturities and
prerefunded bonds--those bonds called prior to their final maturity. Early 1995
was a particularly active period for prerefunded bonds. Investors found large
amounts of money in their hands in January and February 1995, and as the bond
and Treasury markets rallied, this money was aggressively reinvested in
municipal bonds. In addition to the January effect, municipals benefitted from
traditional demand because of very high levels of taxation stemming from the tax
increase of 1993. Recently, the market has become sensitive to the talk of tax
reform, which is expected to become an item of discussion in the 1996
Presidential campaign. We will monitor these developments and keep you, our
shareholders, apprised of events.
The supply of municipal bonds continues to present an intriguing story. After
years of high volume, new issue supply declined dramatically in 1994. In 1993, a
record $290 billion in new bonds were issued, while in 1994 new issue supply was
reduced to $164 billion. Estimates for 1995 range from $125-$150 billion in new
bonds. In fact, during the first four months of 1995, new issue supply was down
approximately 40% from 1994 levels. With fewer bonds in the market, demand
increases, pushing up
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the prices of existing bonds. The combination of a very limited supply, the
strong January effect and the perception that the Federal Reserve was
temporarily content vis-a-vis interest rates led to a rebound in the municipal
market in the last three months of the year ended March 31, 1995.
PORTFOLIO REVIEW
During the year ended March 31, 1995, the performance of PaineWebber Premier
Insured Municipal Income Fund Inc. (the 'Fund') was affected by the volatile
interest rate environment and its impact on the municipal market. During the
first part of the Fund's fiscal year, increasing short-term interest rates
caused long-term interest rates to increase and resulted in long-term municipal
bond prices falling. This put pressure on the Fund's net asset value ('NAV') as
the market value of the long-term bonds in the portfolio declined. As a result,
the Fund's total return for the year ended March 31, 1995, based on the Fund's
net asset value was 7.26%, while the Fund's total return for the same time
period based on the Fund's market value was (8.17)%. As of March 31, 1995, the
Fund's net asset value per share was $13.42, while its share price on the New
York Stock Exchange was $11.13.
The Fund paid dividends from net investment income, which totalled $0.81 per
share of common stock during the twelve months ended March 31, 1995. The Fund's
dividends were affected by the increases in short-term interest rates. As
short-term rates increased, the benefit derived from the Fund's Auction
Preferred Shares ('APS') decreased, lowering the dividend paid to the Fund's
common shareholders. As you know, the Fund's dividends have benefitted from the
use of leverage through the issuance of APS. By investing the proceeds of the
APS offering in longer-term insured municipal bonds, the Fund has been able to
earn a spread, the difference between short- and long-term interest rates, over
the rate paid on the APS, which is a short-term rate. The amount of the spread,
after paying the costs attributable to the APS, increases the income dividends
payable to common shareholders. However, in the past year, short-term interest
rates have increased dramatically, decreasing the benefit derived from the APS.
If short-term interest rates continue to increase, management will carefully
evaluate whether it would be in the best interests of the common shareholders to
redeem the APS and deleverage the Fund. Unless and until that happens, our goal
is to provide the best use of leverage for the Fund to the common shareholders.
The long-term municipal market reached its yield highs and price lows by
mid-November 1994. After that, the tenor of the marketplace changed
dramatically. Long-term rates started declining and prices rose dramatically and
the spread between long- and short-term rates compressed. This helped the Fund's
NAV to increase during the last four month's of the fiscal year. In addition,
the Fund also benefitted from the merger on November 28, 1994 of PaineWebber
Premier Intermediate Tax-Free Income Fund ('Premier Intermediate') into the
Fund. The net assets acquired from Premier Intermediate were reinvested into
higher-yielding, long-term insured securities, which helped cushion the Fund
from the increases in the short-term, APS rates.
Going forward, our outlook is one of cautious optimism. The Federal Reserve
Board appears to have engineered a 'soft landing'--a slowdown in economic growth
without a decline into recession. If the Fed has been successful, it appears as
though the direction for short-term interest rates will eventually decline.
However, if inflation becomes problematic, further increases in short-term
interest rates could be possible. Municipal supply remains extremely light, and
demand has been able to absorb this supply,
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2
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which should cause municipal bonds to perform better than taxable debt
instruments in the coming months. Our long-term outlook is for strength in the
municipal market after the domestic economic picture becomes clearer.
All of the Fund's long-term securities are insured by major bond insurers. As of
March 31, 1995, the breakdown by insurers of bonds in the portfolio was as
follows:
[CHART]
MBIA ........ 38.5% FGIC ........ 15.4% CGIC ........ 4.5%
AMBAC ....... 33.4% FSA ......... 8.2%
As of March 31, 1995, the Fund's largest sectors included: power, 22.5%;
hospital, 21.9%; and water, 17.8%. During this period, the Fund's greatest
concentrations of issues by state were Illinois, 16.0%; Pennsylvania, 9.7%; and
Texas, 8.0%.
We value you as a shareholder and as a client, and thank you for your continued
support. We welcome any comments or questions you may have.
Sincerely,
/s/ Frank P.L. Minard /s/ Gregory W. Serbe
FRANK P.L. MINARD GREGORY W. SERBE
Chairman, Managing Director,
Mitchell Hutchins Asset Management Mitchell Hutchins Asset Management Inc.
Inc. Portfolio Manager,
PaineWebber Premier Insured Municipal
Income Fund Inc.
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3
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PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
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Portfolio of Investments
March 31, 1995
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LONG-TERM MUNICIPAL BONDS--96.12%
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Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
- ---------- --------- --------- ------------------- --------------- -------------
<S> <C> <C> <C>
ALABAMA--1.56%
$ 1,625 Alabama Water Pollution Control Authority
Revolving Fund Loan Series A
(AMBAC-Insured)..................... Aaa AAA 08/15/17 6.750% $ 1,732,169
5,400 Birmingham Special Care Facilities
Finance Authority Birmingham Baptist
Medical Center
(MBIA-Insured)...................... Aaa AAA 08/15/23 5.500 4,937,868
-------------
6,670,037
-------------
ALASKA--1.17%
5,000 Anchorage General Obligation Bonds
(AMBAC-Insured)..................... Aaa AAA 06/01/23 6.250 5,006,700
-------------
CALIFORNIA--2.33%
1,000 California State
(FGIC-Insured)...................... Aaa AAA 11/01/12 7.000 1,095,650
1,585 Contra Costa Water District
(FGIC-Insured)...................... Aaa AAA 10/01/13 6.000 1,567,549
5,000 Los Angeles County California Sales
Tax Commission Sales Tax Revenue
Series B
(FGIC-Insured)...................... Aaa AAA 07/01/15 6.500 5,160,150
2,250 Los Angeles Wastewater System
(MBIA-Insured)...................... Aaa AAA 06/01/20 5.700 2,131,988
-------------
9,955,337
-------------
DELAWARE--2.27%
10,000 Delaware State Economic Development
Authority Delmarva Power
(MBIA-Insured)...................... Aaa AAA 06/01/21 5.900 9,688,400
-------------
DISTRICT OF COLUMBIA--0.87%
4,000 District of Columbia Hospital Revenue
Bonds
Medlantic Health Care Group
(MBIA-Insured)...................... Aaa AAA 08/15/14 5.750 3,721,640
-------------
FLORIDA--2.60%
11,500 Palm Beach County
JFK Medical Center
(FSA-Insured)....................... Aaa AAA 12/01/18 5.800 11,111,415
-------------
ILLINOIS--15.78%
4,000 Illinois Development Finance Authority
Pollution Refunding Commonwealth
Edison Company Project Series D
(AMBAC-Insured)..................... Aaa AAA 03/01/15 6.750 4,207,200
4
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PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
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LONG-TERM MUNICIPAL BONDS--(continued)
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Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
- ---------- --------- --------- ------------------- --------------- -------------
<S> <C> <C> <C>
ILLINOIS (CONCLUDED)
$4,500 Illinois Health Facilities Authority
Franciscan Sisters Health Care
(MBIA-Insured)...................... Aaa AAA 09/01/18 5.750% $ 4,245,930
10,000 Illinois Municipal Electric Agency
(AMBAC-Insured)..................... Aaa AAA 02/01/21 5.750 9,423,100
8,000 Central Lake County Joint Action Water
Agency
(FGIC-Insured)...................... Aaa AAA 05/01/20 5.375 7,211,920
11,400 Chicago--O'Hare International Airport
(MBIA-Insured)...................... Aaa AAA 01/01/15 5.500 to 6.375 11,367,576
17,220 Chicago 911 System
(FGIC-Insured)...................... Aaa AAA 01/01/23 5.625 15,914,207
4,600 Chicago Public Building
(MBIA-Insured)...................... Aaa AAA 12/01/18 5.750 4,344,332
8,000 Regional Transportation Authority
(AMBAC-Insured)..................... Aaa AAA 06/01/22 6.125 7,920,720
2,750 Regional Transportation Authority
(FGIC-Insured)...................... Aaa AAA 06/01/23 to 5.850 to 7.100 2,723,463
06/01/25 -------------
67,358,448
-------------
INDIANA--4.72%
2,500 Indiana Health Facilities Finance
Authority Columbus Regional Hospital
(CGIC-Insured)...................... Aaa AAA 08/15/22 5.500 2,222,650
7,835 Indianapolis Gas & Utilities
(FGIC-Insured)...................... Aaa AAA 06/01/21 5.375 7,021,178
12,000 Marion County Convention Center
(AMBAC-Insured)..................... Aaa AAA 06/01/21 5.500 10,903,800
-------------
20,147,628
-------------
IOWA--1.01%
4,625 Ames Iowa Hospital Authority
Mary Greeley Medical Center
(AMBAC-Insured)..................... Aaa AAA 08/15/22 5.750 4,317,530
-------------
KENTUCKY--4.60%
1,150 Kentucky Development Finance Authority
Hospital Revenue St Luke Hospital
Incorporated Series A
(MBIA-Insured)...................... Aaa AAA 10/01/21 7.000 1,231,225
17,530 Louisville & Jefferson County
(AMBAC-Insured)..................... Aaa AAA 05/15/24 to 6.500 to 6.750 18,379,006
05/15/25 -------------
19,610,231
-------------
LOUISIANA--3.20%
2,000 Louisiana Public Facilities Authority
Alton Oschner Hospital
(AMBAC Insured)..................... Aaa AAA 05/15/17 6.000 1,973,320
5
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PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
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LONG-TERM MUNICIPAL BONDS--(continued)
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Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
- ---------- --------- --------- ------------------- --------------- -------------
<S> <C> <C> <C>
LOUISIANA (CONCLUDED)
$8,500 Louisiana Public Facilities Authority
Alton Oschner Hospital
(MBIA-Insured)...................... Aaa AAA 05/15/11 5.750% $ 8,298,720
3,580 Louisiana Public Facilities Authority
Tulane University
(FGIC-Insured)...................... Aaa AAA 02/15/18 5.750 3,375,797
-------------
13,647,837
-------------
MAINE--2.03%
9,390 Maine Health & Higher Educational
Facilities
(FSA-Insured)....................... Aaa AAA 07/01/23 to 5.500 to 7.000 8,679,639
07/01/24 -------------
MASSACHUSETTS--2.45%
10,000 Massachusetts State Health & Education
Facility
Brigham & Woman's Hospital
(MBIA-Insured)...................... Aaa AAA 07/01/24 6.750 10,434,800
-------------
MICHIGAN--1.96%
8,770 Michigan State Housing Finance
Authority
(AMBAC-Insured)..................... Aaa AAA 04/01/23 5.900 8,366,492
-------------
NEVADA--5.75%
7,750 Clark County Nevada Airport
McCarran International Airport
(AMBAC-Insured)..................... Aaa AAA 07/01/22 6.000 7,526,567
4,000 Clark County Nevada General Obligation
Bonds
(AMBAC-Insured)..................... Aaa AAA 06/01/16 6.000 3,957,080
2,000 Clark County Nevada Sanitation
District
(FGIC-Insured)...................... Aaa AAA 07/01/11 5.700 1,948,160
11,500 Washoe County Nevada Gas and Water
Sierra Power
(MBIA-Insured)...................... Aaa AAA 06/01/23 5.900 11,101,295
-------------
24,533,102
-------------
NEW HAMPSHIRE--1.31%
5,000 New Hampshire Higher Education &
Health Authority
Lakes Regional Hospital
(FGIC-Insured)...................... Aaa AAA 01/01/17 5.500 4,623,750
1,000 New Hampshire Higher Education &
Health Authority
University of New Hampshire
(MBIA-Insured)...................... Aaa AAA 07/01/24 5.750 952,400
-------------
5,576,150
-------------
6
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<CAPTION>
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
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- ------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
- ---------- --------- --------- ------------------- --------------- -------------
<S> <C> <C> <C>
NEW JERSEY--1.22%
$5,000 Salem County New Jersey Industrial
Pollution Control
Refunding Public Service Electric +
Gas Series D
(MBIA-Insured)...................... Aaa AAA 10/01/29 6.550% $ 5,192,400
-------------
NEW MEXICO--3.35%
9,100 Gallup New Mexico Pollution Control
Revenue
Plains Electric
(MBIA-Insured)...................... Aaa AAA 08/15/17 6.650 9,518,418
4,700 Santa Fe New Mexico Water Revenue
(AMBAC-Insured)..................... Aaa AAA 06/01/24 6.300 4,771,346
-------------
14,289,764
-------------
NORTH CAROLINA--0.99%
4,000 Piedmont Triad Airport Authority
Airport Revenue Series A
(MBIA-Insured)...................... Aaa AAA 07/01/16 6.750 4,226,680
-------------
OHIO--0.78%
3,000 Cleveland Ohio Public Power Systems
Revenue
First Mortgage Series A
(MBIA-Insured)...................... Aaa AAA 11/15/24 7.000 3,325,170
-------------
PENNSYLVANIA--9.50%
6,130 North Wales Water Authority
(FGIC-Insured)...................... Aaa AAA 11/01/16 5.500 5,775,441
16,435 Pennsylvania Intergovernmental
Cooperative Authority
(MBIA-Insured)...................... Aaa AAA 06/15/15 to 5.600 to 5.625 15,424,109
06/15/23
2,675 Pennsylvania Intergovernmental
Cooperative Authority
Philadelphia Funding Program
(FGIC-Insured)...................... Aaa AAA 06/15/14 7.000 2,917,141
17,500 Philadelphia Water & Waste Authority
(CGIC-Insured)...................... Aaa AAA 06/15/15 5.500 16,423,225
-------------
40,539,916
-------------
RHODE ISLAND--6.72%
14,000 Rhode Island Convention Center
Authority
(AMBAC-Insured)..................... Aaa AAA 05/15/27 5.750 13,015,520
10,000 Rhode Island Depositors Economic
Protection Corporation
(FSA-Insured)....................... Aaa AAA 08/01/14 5.750 9,550,100
7
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<CAPTION>
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
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LONG-TERM MUNICIPAL BONDS--(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
- ---------- --------- --------- ------------------- --------------- -------------
<S> <C> <C> <C>
RHODE ISLAND (CONCLUDED)
$7,000 Rhode Island Depositors Economic
Protection Corporation
(MBIA-Insured)...................... Aaa AAA 08/01/21 5.250% $ 6,125,210
-------------
28,690,830
-------------
SOUTH CAROLINA--3.94%
2,625 Charleston County Hospital Facilities
Authority
Bon Secours Health System
(FSA-Insured)....................... Aaa AAA 08/15/25 5.625 2,399,460
15,000 South Carolina Public Services
Authority
(MBIA-Insured)...................... Aaa AAA 07/01/21 to 5.500 to 6.000 14,425,750
07/01/31 -------------
16,825,210
-------------
TENNESSEE--1.10%
5,000 Sullivan County Health Education and
Housing Facilities Board
Holston Valley Health
(MBIA-Insured)...................... Aaa AAA 02/15/20 5.750 4,686,100
-------------
TEXAS--7.88%
7,000 Austin Texas Utilities System
(AMBAC-Insured)..................... Aaa AAA 11/15/16 5.750 6,731,690
10,000 Lubbock Texas Health Facilities
Methodist Hospital
(AMBAC-Insured)..................... Aaa AAA 12/01/22 5.900 9,553,500
9,005 Matagorda County Texas Navigation
District 1 Revenue Houston Light &
Power A
(AMBAC-Insured)..................... Aaa AAA 03/01/27 6.700 9,371,684
8,000 San Antonio Texas Water Authority
(MBIA-Insured)...................... Aaa AAA 05/15/16 6.000 7,961,280
-------------
33,618,154
-------------
WASHINGTON--2.04%
5,000 Metropolitan Seattle Sewer
(MBIA-Insured)...................... Aaa AAA 01/01/33 6.300 5,017,400
4,000 Washington State Health Care
Facilities
Tacoma Hospital
(FGIC-Insured)...................... Aaa AAA 08/15/22 5.750 3,709,440
-------------
8,726,840
-------------
WEST VIRGINIA--3.93%
10,000 Marshall County West Virginia
Pollution Authority
Ohio Power
(MBIA-Insured)...................... Aaa AAA 04/01/22 5.900 9,596,400
8
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<CAPTION>
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
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LONG-TERM MUNICIPAL BONDS--(concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
- ---------- --------- --------- ------------------- --------------- -------------
<S> <C> <C> <C>
WEST VIRGINIA (CONCLUDED)
$5,220 West Virginia School Building
Authority
(MBIA-Insured)...................... Aaa AAA 07/01/20 6.000% $ 5,093,467
2,245 West Virginia State Water Development
Authority
(FSA-Insured)....................... Aaa AAA 11/01/29 5.750 2,086,615
-------------
16,776,482
-------------
WISCONSIN--1.06%
1,500 Wisconsin Health & Educational
Facility
Bellin Memorial Hospital
(AMBAC-Insured)..................... Aaa AAA 02/15/19 5.500 1,375,155
3,500 Wisconsin State Health & Educational
Facilities
Hospital Sisters Health System
(MBIA-Insured)...................... Aaa AAA 06/01/18 5.375 3,155,075
-------------
4,530,230
-------------
TOTAL LONG-TERM MUNICIPAL NOTES (cost--$420,187,245)--96.12%............ 410,253,162
-------------
<CAPTION>
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SHORT-TERM MUNICIPAL NOTES--2.25%
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<S> <C> <C> <C>
ALASKA--0.47%
2,000 Valdez Alaska Marine Terminal Revenue*
Exxon Pipeline Company Project...... PI A-1+ 10/01/25 4.550 2,000,000
-------------
FLORIDA--0.09%
400 Hillsborough County Pollution
Control*............................ VMIG1 A-1+ 05/15/18 4.550 400,000
-------------
NEW YORK--1.69%
5,600 New York City*........................ VMIG1 A-1+ 08/15/04 4.600 5,600,000
1,600 New York City
General Obligation*................. VMIG1 A-1+ 08/15/03 to 4.600 1,600,000
08/15/23 -------------
7,200,000
-------------
TOTAL SHORT-TERM MUNICIPAL NOTES (cost--$9,600,000)--2.25%.............. 9,600,000
-------------
TOTAL INVESTMENTS (cost--$429,787,245)--98.37%.......................... 419,853,162
Other assets in excess of liabilities--1.63%............................ 6,941,581
-------------
NET ASSETS--100%........................................................ $ 426,794,743
-------------
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</TABLE>
* Variable Rate Notes are payable on demand. The maturity dates shown are the
stated maturities; the interest rates shown are the current rates as of
March 31, 1995 and reset periodically.
AMBAC -- American Municipal Bond Assurance Corporation
CGIC -- Capital Guaranty Insurance Company
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Insurance Association
See accompanying notes to financial statements.
9
<PAGE>
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
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Statement of Assets and Liabilities
March 31, 1995
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost--$429,787,245)....... $419,853,162
Cash........................................................... 8,745
Interest receivable............................................ 7,499,311
Deferred organizational expenses............................... 203,459
Other assets................................................... 10,586
------------
Total assets................................................. 427,575,263
------------
LIABILITIES
Payable to affiliate........................................... 324,644
Accrued expenses and other liabilities......................... 255,978
Dividends payable to preferred shareholders.................... 199,898
------------
Total liabilities............................................ 780,520
------------
NET ASSETS
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.................. 150,000,000
------------
Common Stock--$0.001 par value; total authorized shares
199,997,000; 20,628,363 shares issued and outstanding........ 20,628
Paid in capital in excess of par value of common shares........ 288,757,700
Overdistributed net investment income.......................... (194,075)
Accumulated net realized losses from investment transactions... (1,855,427)
Net unrealized depreciation of investments..................... (9,934,083)
------------
Net assets applicable to common shareholders................. 276,794,743
------------
Total net assets............................................. $426,794,743
------------
------------
Net asset value per common share--($276,794,743 applicable
to 20,628,363 common shares outstanding).................... $13.42
------
------
See accompanying notes to financial statements
10
<PAGE>
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
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Statement of Operations
For the Year Ended March 31, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest....................................................... $21,779,169
-----------
EXPENSES:
Investment advisory and administration......................... 3,195,714
Auction Preferred Shares expenses.............................. 361,500
Custody and accounting......................................... 144,084
Reports and notices to shareholders............................ 62,673
Legal and audit................................................ 59,427
Amortization of organizational expenses........................ 40,560
Transfer agency and service expenses........................... 27,300
Trustees' fees................................................. 9,000
Other expenses................................................. 10,755
-----------
3,911,013
-----------
NET INVESTMENT INCOME............................................. 17,868,156
-----------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized losses from investment transactions............... (905,404)
Net change in unrealized appreciation/depreciation of
investments.................................................. 12,047,873
-----------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES...... 11,142,469
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $29,010,625
-----------
-----------
See accompanying notes to financial statements
11
<PAGE>
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
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Statement of Cash Flows
For the Year Ended March 31, 1995
- --------------------------------------------------------------------------------
CASH FLOWS PROVIDED/USED BY OPERATING ACTIVITIES:
Interest received............................................. $ 20,401,846
Expenses paid................................................. (4,396,921)
Sale of short-term portfolio investments, net................. 45,550,000
Purchase of long-term portfolio investments................... (101,442,504)
Sale of long-term portfolio investments....................... 58,225,410
------------
Net cash provided by operating activities..................... 18,337,831
------------
CASH FLOWS PROVIDED/USED BY FINANCING ACTIVITIES:
Cash received from the acquisition of PaineWebber Premier
Intermediate Tax-Free Income Fund Inc....................... 100,790
Dividends paid from net investment income to common
stockholders................................................ (13,609,047)
Dividends paid from net investment income to preferred
stockholders................................................ (4,483,135)
Distributions in excess of net investment income to common
stockholders................................................ (424,839)
------------
Net cash used by financing activities......................... (18,416,231)
------------
NET DECREASE IN CASH............................................. (78,400)
CASH AT BEGINNING OF PERIOD...................................... 87,145
------------
CASH AT END OF PERIOD............................................ $ 8,745
------------
------------
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations.......... $ 29,010,625
------------
Increase in cost of investments............................... (26,047,415)
Increase in net unrealized appreciation....................... (12,047,873)
Increase in interest receivable............................... (1,312,726)
Decrease in receivable for investments sold................... 45,933,940
Decrease in deferred organization expenses.................... 40,560
Increase in prepaid expenses.................................. (10,559)
Decrease in payable for investment sold....................... (16,785,423)
Increase in preferred dividend liability...................... 72,611
Increase in payable to affiliate.............................. 6,959
Decrease in accrued expenses and other liabilities............ (522,868)
------------
Total adjustments.......................................... (10,672,794)
------------
Net cash provided by operating activities..................... $ 18,337,831
------------
------------
See accompanying notes to financial statements
12
<PAGE>
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
FOR THE
PERIOD
FOR THE YEAR JUNE 8,
ENDED 1993*
MARCH 31, TO MARCH 31,
1995 1994
------------ ------------
FROM OPERATIONS:
Net investment income........................... $ 17,868,156 $ 11,600,392
Net realized losses from investment
transactions.................................. (905,404) (950,023)
Net change in unrealized
appreciation/depreciation of investments...... 12,047,873 (21,981,956)
------------ ------------
Net increase/decrease in net assets resulting
from operations............................... 29,010,625 (11,331,587)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS:
From net investment income--common
stockholders.................................. (13,609,047) (9,559,000)
From net investment income--preferred
stockholders.................................. (4,555,746) (1,926,667)
Distributions in excess of net investment income
to common stockholders........................ (424,839) --
------------ ------------
Total dividends and distributions to
stockholders................................. (18,589,632) (11,485,667)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from the sale of common stock...... -- 238,875,000
Net proceeds from the sale of Auction Preferred
Shares, Series A, B & C (net of underwriting
discounts and offering costs)................. -- 117,667,500
Proceeds from the acquisition of PaineWebber
Premier Intermediate Tax-Free Income Fund Inc.
(net of reorganization costs of $286,400)..... 82,548,499 --
------------ ------------
Total proceeds from capital share
transactions................................. 82,548,499 356,542,500
------------ ------------
Net increase in net assets...................... 92,969,492 333,725,246
NET ASSETS:
Beginning of period............................. 333,825,251 100,005
------------ ------------
End of period (including underdistributed net
investment income of $114,725 at March 31,
1994)......................................... $426,794,743 $333,825,251
------------ ------------
------------ ------------
- ------------------
* Commencement of operations
See accompanying notes to financial statements
13
<PAGE>
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PaineWebber Premier Insured Municipal Income Fund Inc. (the 'Fund') was
incorporated in Maryland on February 18, 1993 as a closed-end, diversified
management investment company. Prior to June 8, 1993, the Fund had no activities
other than organizational matters and the sale of 6,667 shares of common stock
to Mitchell Hutchins Asset Management Inc. ('Mitchell Hutchins'), a wholly owned
subsidiary of PaineWebber Incorporated.
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.
Valuation of Investments--Where market quotations are readily available,
portfolio securities are valued based upon market quotations, provided such
quotations adequately reflect, in the judgment of Mitchell Hutchins, investment
adviser and administrator of the Fund, the fair value of the securities. When
market quotations are not readily available, securities are valued based upon
appraisals received from a pricing service which utilizes a computerized matrix
pricing system, or based upon appraisals derived from information concerning
those securities or similar securities received from recognized dealers in those
securities. All other securities are valued at fair value as determined in good
faith by or under the direction of the Fund's board of directors. The amortized
cost method of valuation, which approximates market value, is used to value debt
obligations with 60 days or less remaining to maturity, unless the Fund's board
of directors 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 on the identified cost method. Interest income is
recorded on an accrual basis. Premiums are amortized and discounts are accreted
as adjustments to interest income and the identified cost of securities.
Dividends and Other Distributions--The Fund intends to pay monthly cash
dividends to common stockholders 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 stock. Dividends and
distributions to common shareholders are recorded on the ex-dividend date.
Dividends to preferred shareholders are accrued daily. Dividends from net
investment income and distributions from realized gains from investment
transactions have been determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. 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 reclassifications. Net realized capital
gains and certain other amounts, if any, will be distributed at least annually,
but the Fund may make more frequent distributions of such amounts if necessary
to avoid income or excise taxes.
14
<PAGE>
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
ACQUISITION OF PAINEWEBBER PREMIER INTERMEDIATE TAX-FREE INCOME FUND INC.
Effective as of the close of business on November 28, 1994, the Fund
acquired all of the net assets of PaineWebber Premier Intermediate Tax-Free
Income Fund Inc. ('Premier Intermediate') in exchange for the shares of the
Fund.
The acquisition was accomplished by a tax-free exchange of 4,696,696 common
shares of the Fund for 4,496,667 common shares of Premier Intermediate and 600
Auction Preferred Shares Series A of Premier Intermediate for 600 Auction
Preferred Shares Series D of the Fund on November 28, 1994.
Premier Intermediate's net assets at that date were valued at $82,811,775
which consisted of overdistributed net investment income of $14,502, accumulated
net losses of $13,925,432 and net unrealized appreciation of investments of
$39,010.
INVESTMENT ADVISER AND ADMINISTRATOR
The Fund's board of directors has approved an investment advisory and
administration contract ('Advisory Contract') with Mitchell Hutchins, under
which Mitchell Hutchins serves as investment adviser and administrator of the
Fund. In accordance with the Advisory Contract, Mitchell Hutchins receives
compensation from the Fund, computed weekly and paid monthly, at the annual rate
of 0.90% of the Fund's average weekly net assets.
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at March 31,
1995, was substantially the same as the cost of securities for financial
statement purposes.
At March 31, 1995, the components of the net unrealized depreciation of
investments were as follows:
Gross depreciation (from investments having an excess of
cost over value).......................................... $(14,547,781)
Gross appreciation (from investments having an excess of
value over cost).......................................... 4,613,698
------------
Net unrealized depreciation of investments.................. $ (9,934,083)
------------
------------
For the year ended March 31, 1995, total aggregate purchases and sales of
portfolio securities were $84,657,081 and $12,291,470, respectively.
FEDERAL TAX STATUS
The Fund intends to distribute all of its tax-exempt income and any taxable
income and to comply with the other requirements of the Internal Revenue Code
applicable to regulated investment companies. Accordingly, no provision for
federal income taxes is required. In addition, by distributing during each
calendar year substantially all of its net investment income, capital gains and
certain other amounts, if any, the Fund intends not to be subject to a federal
excise tax.
To reflect reclassifications arising from permanent 'book/tax' differences
for the year ended March 31, 1995, underdistributed/(overdistributed) net
investment income was increased by $412,676 and beneficial interest was
decreased by $412,676.
15
<PAGE>
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
- --------------------------------------------------------------------------------
At March 31, 1995, the Fund had a net capital loss carryforward of
$1,326,176 available as a reduction, to the extent provided in the regulations,
of future net capital gains realized, and will expire between March 31, 2002 and
March 31, 2003.
In addition, the Fund has a net capital loss carryforward of approximately
$13,925,000 at March 31, 1995 pursuant to its reorganization with PaineWebber
Premier Intermediate Tax-Free Income Fund Inc. This additional loss carryforward
is available as a reduction, to the extent provided in the regulations, of
future net capital gains realized, and will expire in 2002.
In accordance with Treasury Regulations, the Fund has elected to defer
realized losses arising after October 31, 1994. Such losses have been treated
for tax purposes as arising on April 1, 1995. To the extent that such losses are
used to offset future capital gains, it is probable that the gains so offset
will not be distributed to shareholders.
COMMON STOCK
There are 199,997,000 shares of $0.001 par value common stock authorized.
Of the 20,628,363 common shares outstanding, 6,667 shares are owned by Mitchell
Hutchins.
PaineWebber Incorporated has paid all costs incurred in connection with the
offering of the common stock aggregating $562,763.
AUCTION PREFERRED SHARES
On August 12, 1993, the Fund issued 800 shares of Auction Preferred Shares,
Series A, 800 shares of Auction Preferred Shares Series B and 800 shares of
Auction Preferred Shares Series C which are referred to herein collectively as
the 'APS.' On November 28, 1994, the Fund issued 600 shares of Auction Preferred
Shares, Series D, also referred to herein as 'APS', in exchange for Series A of
PaineWebber Premier Intermediate Tax-Free Fund. 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 and distributions of assets upon liquidation.
Dividends, which are cumulative, are generally reset every 7 days for APS
Series A and D, 28 days for APS Series B and three months for APS Series C.
Dividend rates ranged from 2.35% to 5.50% for the year ended March 31, 1995.
The Fund is subject to certain restrictions relating to the APS. Failure to
comply with these restrictions could preclude the Fund from declaring any
distributions to common shareholders or repurchasing common shares and/or could
trigger the mandatory redemption of APS at liquidation value.
The APS are entitled to one vote per share and, unless otherwise required
by law, will vote with holders of common stock as a single class, except that
the preferred shares will vote separately as a class on certain matters, as
required by law. The holders of the preferred shares have the right to elect two
directors of the Fund.
16
<PAGE>
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
- --------------------------------------------------------------------------------
Quarterly Results of Operations (unaudited)
- --------------------------------------------------------------------------------
Net Realized and Net Increase
Unrealized Gains (Decrease)
(Losses) from in Net Assets
Net Investment Investment Resulting from
Income Activities Operations
---------------- ----------------- -----------------
Per Per Per
Total Common Total Common Total Common
Quarter Ended (000's) Share (000's) Share (000's) Share
- ---------------------- ------- ------ -------- ------ -------- ------
March 31, 1995........ $ 5,203 $0.25 $ 29,543 $ 1.43 $ 34,746 $ 1.68
December 31, 1994*.... 4,425 0.25 (8,026) (0.67) (3,601) (0.42)
September 30, 1994.... 4,128 0.26 (6,142) (0.39) (2,014) (0.13)
June 30, 1994......... 4,112 0.26 (4,233) (0.27) (121) (0.01)
------- ----- -------- ------ -------- ------
Totals.......... $17,868 $1.02 $ 11,142 $ 0.10 $ 29,010 $ 1.12
------- ----- -------- ------ -------- ------
------- ----- -------- ------ -------- ------
March 31, 1994........ $ 3,873 $0.24 $(32,592) $(2.05) $(28,719) $(1.81)
December 31, 1993..... 4,206 0.27 (3,236) (0.20) 970 0.07
September 30, 1993.... 3,319 0.21 10,729 0.67 14,048 0.88
June 30, 1993**....... 202 0.01 2,167 0.14 2,369 0.15
------- ----- -------- ------ -------- ------
Totals.......... $11,600 $0.73 $(22,932) $(1.44) $(11,332) $(0.71)
------- ----- -------- ------ -------- ------
------- ----- -------- ------ -------- ------
- ---------------
* Per common share amounts have been restated using the actual shares
outstanding at the end of each month in the quarter to reflect the
acquisition of PaineWebber Premier Intermediate Tax-Free Income Fund Inc.
** For the period June 8, 1993 (commencement of operations) to June 30, 1993.
17
<PAGE>
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each
period:
For the
For the Period
Year June 8,
Ended 1993+ to
March March
31, 1995 31, 1994
-------- --------
Net asset value, beginning of period...................... $ 13.42 $ 15.00
-------- --------
Net investment income..................................... 1.02** 0.73
Net realized and unrealized gains (losses) from investment
transactions............................................ 0.04 (1.44)
-------- --------
Net increase (decrease) in net asset value from
operations.............................................. 1.06 (0.71)
-------- --------
Dividends and distributions:
From net investment income--common stockholders......... (0.79) (0.60)
From net investment income--preferred stockholders...... (0.25) (0.13)
In excess of net investment income to common
stockholders......................................... (0.02) --
-------- --------
Total dividends and distributions to shareholders......... (1.06) (0.73)
-------- --------
Underwriting and offering costs incurred with the
preferred stock offering charged to common stock........ -- (0.14)
-------- --------
Net asset value, end of period............................ $ 13.42 $ 13.42
-------- --------
-------- --------
Per share market value, end of period..................... $ 11.13 $ 13.00
-------- --------
-------- --------
Total investment return(1)................................ (8.17)% (9.74)%
-------- --------
-------- --------
Ratios to average net assets attributable to common
shares:
Total expenses..................................... 1.74% 1.57%*
Net investment income--before preferred stock
dividends....................................... 7.94% 5.92%*
Preferred stock dividends.......................... 2.02% 0.98%*
Net investment income--available to common
stockholders.................................... 5.92% 4.94%*
Supplemental data:
Net assets, end of period (000's).................. $426,795 $333,825
Portfolio turnover rate............................ 4% 8%
Asset coverage per share of preferred stock, end of
period.......................................... $142,265 $139,094
- ------------------
+ Commencement of operations.
* Annualized.
** Calculated using the average share method.
(1) Total investment return is calculated assuming a purchase of one share of
common stock at the current market price on the first day of the period
reported and the sale at the current market price on the last day of the
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 for periods less than a
year have not been annualized. Total investment return does not reflect
brokerage commissions.
18
<PAGE>
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
- --------------------------------------------------------------------------------
Report of Ernst & Young LLP, Independent Auditors
- --------------------------------------------------------------------------------
To Board of Directors and Stockholders
PaineWebber Premier Insured Municipal Income Fund Inc.
We have audited the accompanying statement of assets and liabilities of
PaineWebber Premier Insured Municipal Income Fund Inc., including the portfolio
of investments, as of March 31, 1995, and the related statements of operations
and cash flows for the year then ended, and the statement of changes in net
assets and the financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at March
31, 1995 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material aspects, the financial position of
PaineWebber Premier Insured Municipal Income Fund Inc. at March 31, 1995, the
results of its operations and its cash flows for the year then ended, the
changes in its net assets and the financial highlights for each of the indicated
periods in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
May 19, 1995
19
<PAGE>
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
- --------------------------------------------------------------------------------
Tax Information
- --------------------------------------------------------------------------------
We are required by subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (March 31,
1995) as to the federal tax status of distributions received by stockholders
during such fiscal year. Accordingly, we are advising you that for all
stockholders $18,164,793 in federal tax-exempt interest dividends were paid
during the fiscal year. Additionally, distributions of $424,839 in excess of net
income were paid to common stockholders during the fiscal year.
The Fund did not invest in any securities which paid interest subject to
the federal alternative minimum tax for individual taxpayers during its fiscal
year. Therefore, none of the dividends paid by the Fund were subject to such
tax.
Because the Fund's fiscal year is not the calendar year, another
notification will be sent in respect of calendar year 1995. The second
notification, which reflects the amount to be used by calendar year taxpayers on
their federal income tax returns, will be made in conjunction with Form 1099 DIV
and will be mailed in January 1996. Stockholders are advised to consult their
own tax advisers with respect to the tax consequences of their investment in the
Fund.
20
<PAGE>
PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
THE FUND
PaineWebber Premier Insured Municipal Income Fund Inc. (the 'Fund') is a
diversified closed-end management investment company whose shares trade on the
New York Stock Exchange ('NYSE'). The Fund's investment objective is to achieve
a high level of current income that is exempt from federal income tax,
consistent with the preservation of capital. The Fund's investment adviser and
administrator is Mitchell Hutchins Asset Management Inc., a wholly owned
subsidiary of PaineWebber Incorporated, which has over $41 billion in assets
under management as of April 30, 1995.
SHAREHOLDER INFORMATION
The Fund's NYSE trading symbol is 'PIF.' Weekly comparative net asset value
and market price information about the Fund is published each Monday in the Wall
Street Journal and the New York Times and each Saturday in Barron's, as well as
in numerous other newspapers.
DISTRIBUTION POLICY
Under current policies the Fund's Board of Directors has established a
Dividend Reinvestment Plan under which all Common Stockholders whose shares are
registered in their own names, or in the name of PaineWebber Incorporated 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 Stockholders 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 Dividend Reinvestment Plan. Additional shares of Common Stock
acquired under the Dividend Reinvestment Plan will be purchased in the open
market, on the NYSE, 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 Fund will
not issue any new shares of Common Stock in connection with its Dividend
Reinvestment Plan.
21
<PAGE>
- ------------------------------------
DIRECTORS
E. Garrett Bewkes, Jr., Chairman
Richard Q. Armstrong
Richard R. Burt
Meyer Feldberg
John R. Torell, III
William D. White
- ------------------------------------
PRINCIPAL OFFICERS
Margo N. Alexander
President
Victoria E. Schonfeld
Vice President
Dianne E. O'Donnell
Vice President and Secretary
Greg W. Serbe
Vice President
Julian F. Sluyters
Vice President and Treasurer
- ------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
- ------------------------------------
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 at
market prices shares of its common
stock in the open market.
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 the report.
RECYCLED PAPER
