-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FyHH5uJ1JkyU6zjuiMeg917Tu/PobNTz03YKZCaX5NIsua7+sPA0i6cx0mjGAN7a AFz+3tgM8l4BAoXaw+E+VQ== 0000930413-99-001434.txt : 19991207 0000930413-99-001434.hdr.sgml : 19991207 ACCESSION NUMBER: 0000930413-99-001434 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991206 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSURED MUNICIPAL INCOME FUND INC CENTRAL INDEX KEY: 0000897802 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133702911 STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07528 FILM NUMBER: 99769290 BUSINESS ADDRESS: STREET 1: 1285 AVE OF THE AMERICAS STREET 2: 14TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2127132000 MAIL ADDRESS: STREET 1: 1285 AVENUE OF THE AMERICAS STREET 2: 14TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC DATE OF NAME CHANGE: 19930714 N-30D 1 SEMI-ANNUAL REPORT TO SHAREHOLDERS [SIDEBAR] INSURED MUNICIPAL INCOME FUND INC. FUND PROFILE as of September 30, 1999 INVESTMENT GOAL: High current income exempt from federal income tax, consistent with preservation of capital PORTFOLIO MANAGERS: Elbridge T. Gerry, III and Richard S. Murphy, Mitchell Hutchins Asset Management Inc. COMMENCEMENT: June 8, 1993 NYSE SYMBOL: PIF DIVIDEND PAYMENTS: Monthly November 15, 1999 Dear Shareholder, We are pleased to present you with the semiannual report for the Insured Municipal Income Fund Inc. (the "Fund") for the six-month period ended September 30, 1999. MARKET REVIEW [GRAPHIC OMITTED] The six-month period was a difficult time for municipal investors as the effects of rising interest rates worked their way through the markets. Amid fears of returning inflation, the Federal Reserve increased short-term rates twice, 0.25% on the last day of June and 0.25% again in August, in an attempt to cool what it saw as a potentially overheating economy. Overall rates rose accordingly, and the long Treasury bond's yield rose to 6.30% before settling back to 6.05% at period-end. Y2K also remained a concern in the third quarter. Fears of computer malfunctions and uncertainty about what might occur on January 1 led many issuers to bring new bonds to market in the third quarter rather than the fourth, before Y2K issues moved to the forefront of investors' minds. The surge of issuance created an oversupply of municipal bonds, which, combined with higher interest rates, pushed bond prices lower during the quarter. A secondary effect of Y2K concerns was the decision of many bond fund managers to raise cash in anticipation of year-end liquidity needs. While we are unsure exactly what impact "Year 2000" will have on the markets, we believe our portfolios are well positioned to meet their liquidity needs and are invested in those issuers best prepared for the transition from 1999 to 2000. OUTLOOK Municipal investors remain wary of yet another 25 basis point increase before year-end, which would effectively undo the 75 basis points of credit easing undertaken in 1998. While the Federal Reserve's preemptive moves to restrain inflation have had a negative effect on the municipal market in the short term, we expect this policy to have beneficial long-term effects. The domestic economy continues to grow faster than expectations while keeping inflation fairly well in check. As long as the markets anticipate Fed moves, the countering of slightly increasing price pressures with slightly tighter money supply should prove benign for municipal bonds. Regardless of whether we see another increase in short-term rates before year-end, municipal bond yields remain historically high compared to U.S. Treasury yields, at approximately 93% of corresponding U.S. Treasurys. The historical five- 1 SEMIANNUAL REPORT year average yield is about 85% of Treasurys, which points out that municipals now appear cheap relative to Treasurys. Excess supply, increased cash positions by mutual fund companies and Y2K-related liquidity premiums are partly responsible. Additionally, "crossover" buyers that move between the municipal and corporate bond markets have been shifting out of municipal bonds. PORTFOLIO REVIEW AVERAGE ANNUAL % RETURNS, PERIODS ENDED 9/30/99 Since Inception 6 Mos.1 1 Yr. 5 Yrs. 6/08/93 - ----------------------------------------------------------------------------- Net Asset Value Return2 -3.48 -2.10 8.41 5.06 Market Price Return3 -9.24 -7.18 9.64 3.25 - ----------------------------------------------------------------------------- SHARE PRICE, DIVIDEND AND YIELD, 9/30/99 - ------------------------------------------- Net Asset Value $14.66 Market Price $12.56 12-Mo. Dividend $0.768 Market Yield4 6.11% IPO Yield4 5.12% - ------------------------------------------- HIGHLIGHTS As we mentioned in our last report, the portfolio's duration had shortened as rates declined and many of our longer positions were pre-refunded to their shorter call maturities. (Duration is a measure of a bond portfolio's exposure to interest rate risk.) With that in mind, during the recent reporting period we attempted to swap out of some of those now shorter securities into bonds on the part of the yield curve that we think offers the best value on a total return basis. Typical of such purchases would be the block of New York State Thruway Authority bonds, with a coupon of 5.25% and a maturity date of 2010 (0.3%),* and Lower Colorado River Authority bonds, with a coupon of 6.00% and a maturity date of 2013 (0.8%). Based upon our detailed quantitative analysis, we find that these premium structures overcompensate bondholders for their greater downside price risk than upside price potential. Going into the next reporting period, we intend to continue our efforts to extend the portfolio's duration with these securities. - ---------- 1 NAV and market price returns for periods of less than one year are not annualized. 2 NAV return assumes, for illustration only, that dividends were reinvested at the net asset value on the payable dates. 3 Market price return assumes dividends were reinvested under the Dividend Reinvestment Plan. 4 IPO yield is calculated by multiplying the September distribution by 12 and dividing by the initial public offering price. Market yield is calculated by multiplying the September distribution by 12 and dividing by the Fund's closing price on September 30, 1999. * Weightings represent percentages of portfolio assets as of September 30, 1999. The Fund's portfolio is actively managed and its composition will vary over time. 2 INSURED MUNICIPAL INCOME FUND INC. SEMIANNUAL REPORT
TOP TEN STATES* As of 9/30/99 % As of 3/31/99 % - --------------------------------------------------------------------------------------------------- Illinois 16.2 Illinois 16.1 Texas 11.9 Texas 11.1 Pennsylvania 11.0 Pennsylvania 11.0 Rhode Island 6.9 Rhode Island 7.1 Nevada 5.8 Nevada 5.8 Indiana 4.7 Indiana 4.9 Kentucky 4.6 Kentucky 4.6 South Carolina 3.9 South Carolina 4.0 West Virginia 3.7 West Virginia 4.0 Louisiana 3.2 Louisiana 3.2 - --------------------------------------------------------------------------------------------------- Total 71.9 Total 71.8 TOP TEN SECTORS* As of 9/30/99 % As of 3/31/99 % - --------------------------------------------------------------------------------------------------- Power 22.7 Power 21.9 Water 20.4 Water 20.4 Healthcare 19.0 Healthcare 19.2 Sales Tax 12.0 Sales Tax 12.0 General Obligations 10.6 General Obligations 10.7 Airport 5.4 Airport 5.4 Hotel 3.0 Hotel 3.2 Excise Tax 2.5 Excise Tax 2.6 Gas Distribution 1.6 Gas Distribution 1.7 Housing 1.6 Housing 1.6 - --------------------------------------------------------------------------------------------------- Total 98.8 Total 98.7 CREDIT QUALITY* 9/30/99 3/31/99 CALL PROTECTION* 9/30/99 - --------------------------------------------------------------------------------------------------- SP-1/VMIG-1 0.3 0.5 Beyond 5 Years 55.0 A1/P1 0.1 0.0 Within 5 Years 45.0 AAA/Aaa 99.6 99.5 - --------------------------------------------------------------------------------------------------- Total 100.0 100.0 Total 100.0
CHARACTERISTICS* 9/30/99 3/31/99 - ---------------------------------------------------------------- Total Net Assets ($mm) $452.5 $471.4 Weighted Avg Maturity 13.71 yrs 16.85 yrs Weighted Avg Duration 6.22 yrs 4.42 yrs Weighted Avg Coupon 5.95% 5.91% AMT Paper 0.00% 0.00% Leverage 33% 33% - ---------------------------------------------------------------- - ---------- * 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. 3 SEMIANNUAL REPORT 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 a QUARTERLY REVIEW on a fund in the PaineWebber Family of Funds,5 please contact your Financial Advisor. Sincerely, /s/MARGO ALEXANDER /s/ELBRIDGE T. GERRY, III - ------------------ ------------------------- MARGO ALEXANDER ELBRIDGE T. GERRY, III Chairman and Chief Executive Officer Senior Vice President Mitchell Hutchins Asset Management Inc. Mitchell Hutchins Asset Management Inc. Portfolio Manager, Insured Municipal Income Fund Inc. /s/BRIAN M. STORMS /s/RICHARD S. MURPHY - ------------------ -------------------- BRIAN M. STORMS RICHARD S. MURPHY President and Chief Operating Officer Senior Vice President Mitchell Hutchins Asset Management Inc. Mitchell Hutchins Asset Management Inc. Portfolio Manager, Insured Municipal Income Fund Inc. This letter is intended to assist shareholders in understanding how the Fund performed during the six-month period ended September 30, 1999, 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. - ---------- 5 Mutual funds are sold by prospectus only. The prospectuses for the funds contain more complete information regarding risks, charges and expenses, and should be read before investing. 4 INSURED MUNICIPAL INCOME FUND INC. PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1999 (UNAUDITED)
PRINCIPAL AMOUNT MOODY'S S&P MATURITY INTEREST (000) RATING RATING DATES RATES VALUE -------- -------- ------ --------- --------- --------- LONG-TERM MUNICIPAL BONDS--98.96% ALABAMA--1.51% $ 1,590 Alabama Water Pollution Control Authority--Revolving Fund Loan Series A (AMBAC Insured) ........... Aaa AAA 08/15/17 6.750% $ 1,709,107 5,400 Birmingham Special Care Facilities Finance Authority--Birmingham Baptist Medical Center (MBIA Insured) ........................... Aaa AAA 08/15/23 5.500 5,105,052 ------------ 6,814,159 ------------ ALASKA--1.11% 5,000 Anchorage General Obligation Bonds (AMBAC Insured) .................... Aaa AAA 06/01/23 6.250 5,008,300 ------------ CALIFORNIA--2.28% 30 California State (FGIC Insured) ..... Aaa AAA 11/01/12 7.000 33,431 970 California State (Pre-refunded with U.S. Government Securities to 11/01/04 @ 102) (FGIC Insured) .. Aaa AAA 11/01/12 7.000 1,108,060 1,585 Contra Costa Water District (FGIC Insured) ..................... Aaa AAA 10/01/13 6.000 1,656,404 5,000 Los Angeles County Sales Tax Commission--Sales Tax Revenue Series B (FGIC Insured) ............ Aaa AAA 07/01/15 6.500 5,266,200 2,250 Los Angeles Wastewater System (MBIA Insured) ..................... Aaa AAA 06/01/20 5.700 2,252,813 ------------ 10,316,908 ------------ DELAWARE--2.21% 10,000 Delaware State Economic Development Authority Delmarva Power (MBIA Insured) ...... Aaa AAA 06/01/21 5.900 10,018,100 ------------ DISTRICT OF COLUMBIA--0.91% 4,000 District of Columbia Hospital Revenue Bonds--Medlantic Health Care Group (MBIA Insured) .......... Aaa AAA 08/15/14 5.750 4,109,080 ------------ ILLINOIS--16.11% 4,000 Illinois Development Finance Authority Pollution Refunding Commonwealth Edison Company Project Series D (AMBAC Insured) .................... Aaa AAA 03/01/15 6.750 4,359,840 4,500 Illinois Health Facilities Authority Franciscan Sisters Health Care (MBIA Insured) ......... Aaa AAA 09/01/18 5.750 4,567,365 10,000 Illinois Municipal Electric Agency (AMBAC Insured) ............. Aaa AAA 02/01/21 5.750 10,398,600 8,000 Central Lake County Joint Action Water Agency (FGIC Insured) ........ Aaa AAA 05/01/20 5.375 7,511,760 17,220 Chicago 911 System (FGIC Insured) ... Aaa AAA 01/01/23 5.625 18,155,907 11,400 Chicago--O'Hare International Airport (MBIA Insured) ............. Aaa AAA 01/01/15 5.500 to 6.375 11,812,662 4,600 Chicago Public Building Commission (MBIA Insured) .......... Aaa AAA 12/01/18 5.750 4,905,532 8,000 Regional Transportation Authority (AMBAC Insured) .................... Aaa AAA 06/01/22 6.125 8,363,920 2,750 Regional Transportation Authority (FGIC Insured) ..................... Aaa AAA 06/01/23 to 06/01/25 5.850 to 7.100 2,822,143 ------------ 72,897,729 ------------ 5 INSURED MUNICIPAL INCOME FUND INC. PRINCIPAL AMOUNT MOODY'S S&P MATURITY INTEREST (000) RATING RATING DATES RATES VALUE -------- -------- ------ --------- --------- --------- LONG-TERM MUNICIPAL BONDS (CONTINUED) INDIANA--4.66% $ 2,500 Indiana Health Facilities Finance Authority--Columbus Regional Hospital (CGIC Insured) ............ Aaa AAA 08/15/22 5.500% $ 2,360,175 7,835 Indianapolis Gas & Utilities (FGIC Insured) ..................... Aaa AAA 06/01/21 5.375 7,325,803 12,000 Marion County Convention Center (AMBAC Insured) .................... Aaa AAA 06/01/21 5.500 11,402,040 ------------ 21,088,018 ------------ IOWA--1.00% 4,625 Ames Hospital Authority--Mary Greeley Medical Center (AMBAC Insured) ................... Aaa AAA 08/15/22 5.750 4,526,811 ------------ KENTUCKY--4.57% 1,150 Kentucky Development Finance Authority Hospital Revenue-- St. Luke Hospital Incorporated Series A (MBIA Insured) ............ Aaa AAA 10/01/21 7.000 1,234,122 17,530 Louisville & Jefferson County (AMBAC Insured) ............. Aaa AAA 05/15/24 to 05/15/25 6.500 to 6.750 19,456,296 ------------ 20,690,418 ------------ LOUISIANA--3.19% 10,500 Louisiana Public Facilities Authority--Alton Oschner Hospital (MBIA Insured) ............ Aaa AAA 05/15/11 to 05/15/17 5.750 to 6.000 10,765,960 1,710 Louisiana Public Facilities Authority--Tulane University (FGIC Insured) ..................... Aaa AAA 02/15/18 5.750 1,712,223 1,870 Louisiana Public Facilities Authority--Tulane University (Pre-refunded with U.S. Government Securities to 02/15/03 @ 102) (FGIC Insured) ..................... Aaa AAA 02/15/18 5.750 1,980,255 ------------ 14,458,438 ------------ MAINE--2.04% 3,105 Maine Health & Higher Educational Facilities Authority Revenue (FSA Insured) ...................... Aaa AAA 07/01/23 5.500 2,935,715 4,785 Maine Health & Higher Educational Facilities Authority Revenue (Pre-refunded with U.S. Government Securities to 07/01/12 @100) (FSA Insured) ...................... NR AAA 07/01/23 5.500 4,591,734 1,500 Maine Health & Higher Educational Facilities Authority Revenue (Pre-refunded with U.S. Government Securities to 07/01/04 @102) (FSA Insured) ...................... Aaa AAA 07/01/24 7.000 1,682,310 ------------ 9,209,759 ------------ 6 INSURED MUNICIPAL INCOME FUND INC. PRINCIPAL AMOUNT MOODY'S S&P MATURITY INTEREST (000) RATING RATING DATES RATES VALUE -------- -------- ------ --------- --------- --------- LONG-TERM MUNICIPAL BONDS (CONTINUED) MASSACHUSETTS--2.35% $10,000 Massachusetts State Health & Educational Facility Brigham & Woman's Hospital (MBIA Insured) .... Aaa AAA 07/01/24 6.750% $ 10,627,500 ------------ MICHIGAN--1.55% 7,020 Michigan State Housing Finance Authority (AMBAC Insured) .......... Aaa AAA 04/01/23 5.900 6,993,464 ------------ NEVADA--5.75% 7,750 Clark County Airport--McCarran International Airport (AMBAC Insured) .................... Aaa AAA 07/01/22 6.000 8,225,850 4,000 Clark County General Obligation Bonds (AMBAC Insured) .............. Aaa AAA 06/01/16 6.000 4,166,400 2,000 Clark County Sanitation District (FGIC Insured) ..................... Aaa AAA 07/01/11 5.700 2,077,020 11,500 Washoe County Gas and Water Sierra Power (MBIA Insured) ............... Aaa AAA 06/01/23 5.900 11,531,855 ------------ 26,001,125 ------------ NEW HAMPSHIRE--1.28% 5,000 New Hampshire Higher Education & Health Authority--Lakes Region Hospital (FGIC Insured) ............ Aaa AAA 01/01/17 5.500 4,816,250 1,000 New Hampshire Higher Education & Health Authority--University of New Hampshire (MBIA Insured) ....... Aaa AAA 07/01/24 5.750 985,620 ------------ 5,801,870 ------------ NEW JERSEY--1.17% 5,000 Salem County Industrial Pollution Control Refunding Public Service Electric and Gas Series D (MBIA Insured) ..................... Aaa AAA 10/01/29 6.550 5,310,600 ------------ NEW MEXICO--3.13% 8,850 Gallup Pollution Control Revenue Plains Electric (MBIA Insured) ..... Aaa AAA 08/15/17 6.650 9,123,111 4,700 Santa Fe Water Revenue (AMBAC Insured) ..................... Aaa AAA 06/01/24 6.300 5,050,714 ------------ 14,173,825 ------------ NEW YORK--1.14% 2,115 New York Series J (MBIA Insured) .... Aaa AAA 08/01/13 5.375 2,089,451 1,250 New York State Thruway Authority Highway & Bridge Trust Fund Series C (FGIC Insured) ............ Aaa AAA 04/01/10 5.250 1,264,088 2,000 Long Island Power Authority New York Electric Systems Revenue General Series A (FSA Insured) ..... Aaa AAA 12/01/22 5.125 1,819,960 ------------ 5,173,499 ------------ 7 INSURED MUNICIPAL INCOME FUND INC. PRINCIPAL AMOUNT MOODY'S S&P MATURITY INTEREST (000) RATING RATING DATES RATES VALUE -------- -------- ------ --------- --------- --------- LONG-TERM MUNICIPAL BONDS (CONTINUED) NORTH CAROLINA--0.92% $ 4,000 Piedmont Triad Airport Authority Airport Revenue Series A (MBIA Insured) ..................... Aaa AAA 07/01/16 6.750% $ 4,150,120 ------------ OHIO--0.75% 3,000 Cleveland Public Power Systems Revenue--First Mortgage Series A (MBIA Insured) ..................... Aaa AAA 11/15/24 7.000 3,386,400 ------------ PENNSYLVANIA--10.88% 16,435 Pennsylvania Intergovernmental Cooperative Authority (MBIA Insured) ..................... Aaa AAA 06/15/15 to 06/15/23 5.600 to 5.625 17,107,100 2,675 Pennsylvania Intergovernmental Cooperative Authority Philadelphia Funding Program (FGIC Insured) ..................... Aaa AAA 06/15/14 7.000 2,988,162 6,130 North Wales Water Authority (FGIC Insured) ..................... Aaa AAA 11/01/16 5.500 5,925,503 2,000 Philadelphia Pennsylvania (FSA Insured) ...................... Aaa AAA 03/15/13 to 03/15/14 5.250 1,937,320 3,750 Philadelphia Pennsylvania School District Series A (MBIA Insured) ... Aaa AAA 04/01/16 5.250 3,574,913 10,530 Philadelphia Water & Waste Water Revenue (FSA Insured) .............. Aaa AAA 06/15/15 5.500 10,365,943 6,970 Philadelphia Water & Waste Water Revenue (Pre-refunded with U.S. Government Securities to 06/15/03 @ 102) (FSA Insured) ...... Aaa AAA 06/15/15 5.500 7,345,404 ------------ 49,244,345 ------------ RHODE ISLAND--6.84% 14,000 Rhode Island Convention Center Authority (AMBAC Insured) .......... Aaa AAA 05/15/27 5.750 13,602,960 5,140 Rhode Island Depositors Economic Protection Corporation (FSA Insured) ...................... NR AAA 08/01/14 5.750 5,300,368 4,860 Rhode Island Depositors Economic Protection Corporation (FSA Insured) ...................... Aaa AAA 08/01/14 5.750 5,036,758 7,000 Rhode Island Depositors Economic Protection Corporation (Pre-refunded with U.S. Government Securities to 02/01/11 @ 100) (MBIA Insured) ..................... Aaa AAA 08/01/21 5.250 7,011,340 ------------ 30,951,426 ------------ SOUTH CAROLINA--3.91% 15,000 South Carolina Public Services Authority (MBIA Insured) ........... Aaa AAA 07/01/21 to 07/01/31 5.500 to 6.000 15,070,200 2,625 Charleston County Hospital Facilities Authority--Bon Secours Health System (FSA Insured) ........ Aaa AAA 08/15/25 5.625 2,617,676 ------------ 17,687,876 ------------ 8 INSURED MUNICIPAL INCOME FUND INC. PRINCIPAL AMOUNT MOODY'S S&P MATURITY INTEREST (000) RATING RATING DATES RATES VALUE -------- -------- ------ --------- --------- --------- LONG-TERM MUNICIPAL BONDS (CONTINUED) TENNESSEE--1.09% $ 5,000 Sullivan County Health Education and Housing Facilities Board-- Holston Valley Health (MBIA Insured) ..................... Aaa AAA 02/15/20 5.750% $ 4,934,700 ------------ TEXAS--11.80% 7,000 Austin Utilities System (AMBAC Insured) .................... Aaa AAA 11/15/16 5.750 7,009,380 7,945 Bexar Metropolitan Water District Waterworks Systems Revenue (MBIA Insured) ..................... Aaa AAA 05/01/22 5.875 7,929,746 5,730 Bexar Metropolitan Water District Waterworks Systems Revenue (Pre-refunded with U.S. Government Securities to 05/01/05 @ 102) (MBIA Insured) ..................... NR AAA 05/01/22 5.875 6,166,110 3,620 Lower Colorado River Authority Texas Revenue Refunding ............ Aaa AAA 05/15/13 6.000 3,772,800 10,000 Lubbock Health Facilities-- Methodist Hospital (AMBAC Insured) .................... Aaa AAA 12/01/22 5.900 10,674,100 9,005 Matagorda County Navigation District 1 Revenue--Houston Light & Power (AMBAC Insured) ............ Aaa AAA 03/01/27 6.700 9,556,917 4,955 San Antonio Water Revenue (MBIA Insured) ..................... Aaa AAA 05/15/16 6.000 5,105,830 720 San Antonio Water Revenue (Pre-refunded with U.S. Government Securities to 05/15/11 @ 100) (MBIA Insured) ..................... Aaa AAA 05/15/16 6.000 755,727 2,325 San Antonio Water Revenue (Pre-refunded with U.S. Government Securities to 05/15/02 @ 100) (MBIA Insured) ..................... Aaa NR 05/15/16 6.000 2,422,580 ------------ 53,393,190 ------------ WASHINGTON--2.12% 4,000 Washington State Health Care Facilities--Tacoma Hospital (FGIC Insured) ..................... Aaa AAA 08/15/22 5.750 4,223,400 5,000 Metropolitan Seattle Sewer (MBIA Insured) ..................... Aaa AAA 01/01/33 6.300 5,374,550 ------------ 9,597,950 ------------ WEST VIRGINIA--3.65% 4,220 West Virginia School Building Authority (MBIA Insured) ........... Aaa AAA 07/01/20 6.000 4,291,107 2,245 West Virginia State Water Development Authority (FSA Insured) ...................... Aaa AAA 11/01/29 5.750 2,203,917 10,000 Marshall County Pollution Authority Ohio Power (MBIA Insured) ..................... Aaa AAA 04/01/22 5.900 10,013,900 ------------ 16,508,924 ------------ 9 INSURED MUNICIPAL INCOME FUND INC. PRINCIPAL AMOUNT MOODY'S S&P MATURITY INTEREST (000) RATING RATING DATES RATES VALUE -------- -------- ------ --------- --------- --------- LONG-TERM MUNICIPAL BONDS (CONCLUDED) WISCONSIN--1.04% $ 1,500 Wisconsin Health & Educational Facilities--Bellin Memorial Hospital (AMBAC Insured) ........... Aaa AAA 02/15/19 5.500% $ 1,419,570 3,500 Wisconsin State Health & Educational Facilities-- Hospital Sisters Health System (MBIA Insured) ..................... Aaa AAA 06/01/18 5.375 3,293,430 ------------ 4,713,000 ------------ Total Long-Term Municipal Bonds (cost--$434,307,620) 447,787,534 ------------ SHORT-TERM MUNICIPAL NOTES--0.42% ARIZONA--0.11% 500 Maricopa County Pollution Control Corporation Pollution Control Revenue Series D ................... SP-1 A1+ 10/01/99 3.900* 500,000 ------------ MICHIGAN--0.22% 1,000 University Michigan University Revenues Medical Service Plan ...... VMIG-1 A1+ 10/01/99 3.800* 1,000,000 ------------ NEW YORK--0.09% 100 New York New York Series B .......... VMIG-1 A1+ 10/01/99 3.950* 100,000 300 New York City Municipal Water Finance Authority Water & Sewer System Revenue Series C ............ VMIG-1 A1+ 10/01/99 3.950* 300,000 ------------ 400,000 ------------ Total Short-Term Municipal Notes (cost--$1,900,000) ............................ 1,900,000 ------------ Total Investments (cost--$436,207,620)--99.38% . 449,687,534 Other assets in excess of liabilities--0.62% ... 2,816,103 ------------ Net Assets--100.00% ............................ $452,503,637 ============
- ---------------- * 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, 1999. NR -- Not Rated. AMBAC -- American Municipal Bond Assurance Corporation. CGIC -- Capital Guaranty Insurance Company. FGIC -- Financial Guaranty Insurance Company. FSA -- Financial Security Assurance Incorporated. MBIA -- Municipal Bond Investors Assurance. See accompanying notes to financial statements 10 STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1999 (UNAUDITED)
ASSETS: Investments in securities, at value (cost--$436,207,620) ....................................... $449,687,534 Cash ........................................................................................... 19,511 Interest receivable ............................................................................ 7,567,826 ------------ Total assets ................................................................................... 457,274,871 ------------ LIABILITIES: Payable for investment purchased ............................................................... 3,788,909 Dividends payable to preferred shareholders .................................................... 317,782 Payable to investment adviser and administrator ................................................ 288,177 Accrued expenses and other liabilities ......................................................... 376,366 ------------ Total liabilities .............................................................................. 4,771,234 ------------ 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 per share ................ 150,000,000 ------------ Common Stock--$0.001 par value; total authorized shares--199,997,000; 20,628,363 shares issued and outstanding ....................................................... 302,697,425 Undistributed net investment income ............................................................ 1,100,873 Accumulated net realized loss from investment transactions ..................................... (14,774,575) Net unrealized appreciation of investments ..................................................... 13,479,914 ------------ Net assets applicable to common shareholders ................................................... 302,503,637 ------------ Total net assets ............................................................................... $452,503,637 ============ Net asset value per common share ($302,503,637 applicable to 20,628,363 common shares outstanding) ..................................................... $14.66 ======
11 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) ------------- INVESTMENT INCOME: Interest ................................................... $ 12,935,822 ------------ EXPENSES: Investment advisory and administration ..................... 2,082,103 Auction Preferred Shares expenses .......................... 196,029 Custody and accounting ..................................... 128,507 Legal and audit ............................................ 45,388 Reports and notices to shareholders ........................ 33,990 Transfer agency and service fees ........................... 23,373 Directors' fees ............................................ 5,250 Other expenses ............................................. 22,859 ------------ 2,537,499 Less: Fee waiver from adviser and administrator ............ (289,181) ------------ Net expenses ............................................... 2,248,318 ------------ Net investment income ...................................... 10,687,504 ------------ REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES: Net realized gains from investment transactions ............................................. 13,848 Net change in unrealized appreciation/ depreciation of investments .............................. (19,190,531) ------------ NET REALIZED AND UNREALIZED LOSSES FROM INVESTMENT ACTIVITIES ................................ (19,176,683) ------------ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................. $ (8,489,179) ============ 12 STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED FOR THE YEAR SEPTEMBER 30, 1999 ENDED (UNAUDITED) MARCH 31, 1999 ---------------- ------------- FROM OPERATIONS: Net investment income .............................................................. $ 10,687,504 $ 21,110,115 Net realized gains from investment transactions .................................... 13,848 14,887 Net change in unrealized appreciation/depreciation of investments .................. (19,190,531) 3,450,143 ------------- ------------- Net increase (decrease) in net assets resulting from operations .................... (8,489,179) 24,575,145 ------------- ------------- DIVIDENDS FROM: Net investment income--common stockholders ......................................... (7,921,291) (15,842,583) Net investment income--preferred stockholders ...................................... (2,446,613) (5,133,034) ------------- ------------- Total dividends to stockholders .................................................... (10,367,904) (20,975,617) ------------- ------------- Net increase (decrease) in net assets .............................................. (18,857,083) 3,599,528 NET ASSETS: Beginning of period ................................................................ 471,360,720 467,761,192 ------------- ------------- End of period (including undistributed net investment income of $1,100,873 and $781,273, respectively) ............................................ $ 452,503,637 $ 471,360,720 ============= =============
13 STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) ---------------- CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Interest received ....................................................................................... $ 12,790,499 Expenses paid (net of fee waivers) ...................................................................... (2,804,372) Sale of short-term portfolio investments, net ........................................................... 593,000 Purchase of long-term portfolio investments ............................................................. (18,317,948) Sale of long-term portfolio investments ................................................................. 18,061,673 ------------ Net cash flows provided by operating activities ......................................................... 10,322,852 ------------ CASH FLOWS USED FOR FINANCING ACTIVITIES: Dividends paid from net investment income to common stockholders ........................................ (7,921,291) Dividends paid from net investment income to preferred stockholders ..................................... (2,382,050) ------------ Net cash flows used for financing activities ............................................................ (10,303,341) ------------ Net increase in cash .................................................................................... 19,511 Cash at beginning of period ............................................................................. -- ------------ Cash at end of period ................................................................................... $ 19,511 ============ RECONCILIATION OF NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Net decrease in net assets resulting from operations .................................................... $ (8,489,179) ------------ Decrease in investments, at value ....................................................................... 15,679,577 Increase in interest receivable ......................................................................... (100,401) Decrease in other assets ................................................................................ 4,523 Increase in payable for investment purchased ............................................................ 3,788,909 Decrease in payable to investment adviser and administrator ............................................. (22,130) Decrease in accrued expenses and other liabilities ...................................................... (538,447) ------------ Total adjustments ....................................................................................... 18,812,031 ------------ Net cash flows provided by operating activities ......................................................... $ 10,322,852 ============
14 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (UNAUDITED) Insured Municipal Income Fund Inc. (the "Fund") was incorporated in Maryland on February 18, 1993, and is registered with the Securities and Exchange Commission as a closed-end diversified management investment company. The preparation of financial statements in accordance with generally accepted accounting principles 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 for its portfolio securities. The Fund normally obtains market value for its securities from independent pricing sources. 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. Securities traded in the over-the-counter ("OTC") market and listed on The Nasdaq Stock Market, Inc. ("Nasdaq") normally are valued at the last sale price on Nasdaq prior to valuation. Other OTC securities are valued at the last bid price available prior to valuation. Securities which are listed on U.S. and foreign stock exchanges normally are valued at the last sale price on the day the securities are valued or, lacking any sales on such day, at the last available bid price. In case where securities are traded on more than one exchange, the securities are valued on the exchange designated as the primary market by Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins"), a wholly owned subsidiary of PaineWebber Incorporated ("PaineWebber") and investment adviser and administrator of the fund. 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 securities. DIVIDENDS AND 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 stockholders are recorded on the ex-dividend date. Dividends to preferred stockholders are accrued daily. Dividends from net investment income and distributions from realized capital gains from investment transactions are determined in accordance with federal 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 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 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 15 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. For the six months ended September 30, 1999, Mitchell Hutchins voluntarily waived $289,181 in investment advisory and administration fees from the Fund. INVESTMENTS IN SECURITIES For federal income tax purposes, the cost of securities owned at September 30, 1999 was substantially the same as the cost of securities for financial statement purposes. At September 30, 1999, the components of the net unrealized appreciation of investments were as follows: Gross appreciation (from investments having an excess of value over cost) ............... $15,924,604 Gross depreciation (from investments having an excess of cost over value) ............... (2,444,690) ----------- Net unrealized appreciation of investments ........... $13,479,914 =========== For the six months ended September 30, 1999, total aggregate purchases and sales of portfolio securities, excluding short-term securities, were $22,106,857 and $18,061,673, respectively. FEDERAL TAX STATUS The Fund intends to distribute substantially all of its tax-exempt income and any taxable income and to comply with the other requirements of the Internal Revenue Code applicable to regulated investment companies. Accordingly, no provision for federal income taxes is required. In addition, by distributing during each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, the Fund intends not to be subject to a federal excise tax. At March 31, 1999, the Fund had a net capital loss carryforward of $14,788,423 which is available as a reduction, to the extent provided in the regulations, of future net realized capital gains and will expire by March 31, 2003. 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. CAPITAL STOCK COMMON STOCK--There are 199,997,000 shares of $0.001 par value common stock authorized. Of the 20,628,363 common shares outstanding, 17,173 shares are owned by Mitchell Hutchins. 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 364 days for APS Series A, 28 days for APS Series B, three months for APS Series C and 7 days for APS Series D. Dividend rates ranged from 2.990% to 3.599% for the six months ended September 30, 1999. 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 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, 1999 -------------------------------------------------- (UNAUDITED) 1999 1998 1997 1996 1995 ----------------- ------- ------- ------- ------- ------- Net asset value, beginning of period $ 15.58 $ 15.40 $ 14.10 $ 14.11 $ 13.42 $ 13.42 ------- ------- ------- ------- ------- ------- Net investment income 0.52 1.02 1.03 1.05 1.06 1.02** Net realized and unrealized gains (losses) from investments (0.94) 0.18 1.30 (0.03) 0.67 0.04 ** ------- ------- ------- ------- ------- ------- Net increase (decrease) from investment operations (0.42) 1.20 2.33 1.02 1.73 1.06 ------- ------- ------- ------- ------- ------- Dividends and distributions: From net investment income-- common stockholders (0.38) (0.77) (0.77) (0.77) (0.76) (0.79) From net investment income-- preferred stockholders (0.12) (0.25) (0.26) (0.26)` (0.28) (0.25) In excess of net investment income-- common stockholders -- -- -- -- -- (0.02) In excess of net investment income-- preferred stockholders -- -- -- -- -- (0.00)++ ------- ------- ------- ------- ------- ------- Total dividends and distributions to stockholders (0.50) (1.02) (1.03) (1.03) (1.04) (1.06) ------- ------- ------- ------- ------- ------- Net asset value, end of period $ 14.66 $ 15.58 $ 15.40 $ 14.10 $ 14.11 $ 13.42 ======= ======= ======= ======= ======= ======= Per share market value, end of period $ 12.56 $ 14.25 $ 13.56 $ 12.00 $ 12.13 $ 11.13 ======= ======= ======= ======= ======= ======= Total investment return(1) (9.24)% 10.96% 19.70% 5.45% 16.13% (8.17)% ======= ======= ======= ======= ======= ======= Ratios to average net assets attributable to common shares: Total expenses net of waivers from adviser 1.44%* 1.46% 1.49% 1.38% 1.33% 1.74% Total expenses before waivers from adviser 1.62%* 1.65% 1.74% 1.76% 1.65% 1.74% Net investment income before preferred stock dividends 6.84%* 6.58% 6.84% 7.37% 7.45% 7.94% Preferred stock dividends 1.56%* 1.60% 1.75% 1.81% 1.97% 2.02% Net investment income available to common stockholders 5.27%* 4.98% 5.09% 5.56% 5.48% 5.92% Supplemental data: Net assets, end of period (000's) $452,504 $471,361 $467,761 $440,758 $441,040 $426,795 Portfolio turnover rate 4% 5% 6% 0% 4% 4% Asset coverage per share of preferred stock, end of period $150,835 $157,120 $155,920 $146,919 $147,013 $142,265
- ---------- ++ Actual amount calculates to $0.00499 per common share. * Annualized. ** Calculated using the average share method. (1) Total investment return is calculated assuming a purchase of common stock at the current market price on the first day 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 stockholders at prices obtained under the Fund's Dividend Reinvestment Plan. Total investment return for periods of less than one year has not been annualized. Total investment return does not reflect brokerage commissions. 17 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 adviser and administrator is Mitchell Hutchins Asset Management Inc., a wholly owned asset management subsidiary of PaineWebber Incorporated, which has over $59 billion in assets under management as of October 31, 1999. 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, each Sunday in THE NEW YORK TIMES and each week in BARRON'S, as well as in numerous other newspapers. An annual meeting of shareholders of the Fund was held on July 15, 1999. At the meeting Margo N. Alexander, Richard Q. Armstrong, E. Garrett Bewkes, Jr., Richard R. Burt, Mary C. Farrell, Meyer Feldberg, George W. Gowen, Frederic V. Malek, and Carl W. Schafer and Brian M. Storms were elected to serve as directors until the next annual meeting of shareholders, or until their successors are elected and qualified; and Ernst &Young, LLP was ratified as independent auditors for the Fund for the fiscal year ended March 31, 2000. Such shares represent 99.01% of the outstanding shares of common stock of the Fund entitled to vote at this meeting, including a quorum of the Fund's APS with respect to the election of the two directors to be elected by the APS, and constitute a quorum for the conduct of business at this meeting. The following shares were voted for the proposal indicated below: ALL SHARES VOTING AS A SINGLE CLASS: PROPOSAL 1 - ----------
Shares Voted For as To vote for or against Shares a % of Total Shares Withhold the election of: Voted for Shares Voted Authority ---------- ------------------- --------------- Richard Q. Armstrong ............ 17,534,640 98.96% 183,575 E. Garret Bewkes, Jr. ........... 17,519,441 98.88 198,774 Richard R. Burt ................. 17,549,107 99.05 169,108 Mary C. Farrell ................. 17,542,304 99.01 175,911 George W. Gowen ................. 17,530,505 98.94 187,710 Frederick V. Malek .............. 17,542,287 99.01 175,928 Carl W. Schafer ................. 17,544,775 99.02 173,440 Brian M. Storms ................. 17,547,593 99.04 170,622
18 INSURED MUNICIPAL INCOME FUND INC. GENERAL INFORMATION (CONTINUED) PROPOSAL 2 - ----------
Shares Voted For as Shares a % of Total Shares Voted Shares Voted for Shares Voted Against Abstain -------- --------------- ------------ ------- Ratification of the selection of Ernst &Young LLP as the independent auditors of Insured Municipal Income Fund Inc. for the fiscal year ending March 31, 2000 17,542,200 99.01% 72,533 103,483
AUCTION PREFERRED SHARES: PROPOSAL 3 - ----------
Shares Voted For as To vote for or against Shares a % of Total Shares Withhold the election of: Voted for Shares Voted Authority -------- --------------- ------------ Margo N. Alexander 2,865 96.79% 95 Meyer Feldberg 2,865 96.79 95
YEAR 2000 RISKS Like other funds and financial and business organizations around the world, the Fund could be adversely affected if the computer system used by its investment adviser, other service providers and entities with computer systems that are linked to Fund records do not properly process and calculate date-related information and data from and after January 1, 2000. This is commonly known as the "Year 2000 Issue." Mitchell Hutchins is taking steps that it believes are reasonably designed to address the Year 2000 Issue with respect to the computer system that it uses, and to obtain satisfactory assurances that each of the Fund's other major service providers is taking comparable steps. However, there can be no assurance that these steps will be sufficient to avoid any adverse impact on the Fund. In addition, issuers of securities in which the Fund invests may be adversely affected by year 2000 related problems. This could have an impact on the value of the Fund's investments and share price. DISTRIBUTION POLICY The Fund's Board of Directors has established a Dividend Reinvestment Plan (the "Plan") under which all common stockholders whose shares are registered in their own names, or in the name of PaineWebber Incorporated or its nominee, have all dividends and other distributions on their shares of common stock automatically reinvested in additional shares of common stock, unless such common stockholders 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 Plan.The ability of such stockholders to participate in the Plan may change if their shares are transferred into the name of another broker or nominee. A stockholder may elect not to participate in the Plan or may terminate participation in the Plan at any time without penalty, and stockholders who have previously terminated participation in the Plan may rejoin at any time. 19 INSURED MUNICIPAL INCOME FUND INC. GENERAL INFORMATION (CONCLUDED) Changes in elections must be made in writing to the Fund's transfer agent and should include the stockholder's name and address as they appear on that 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 stockholder 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, 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 stockholder 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 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. See "Tax Information." Additional information regarding the Plan may be obtained from, and all correspondence concerning the Plan should be directed to, the transfer agent at PNCBank, National Association, c/o PFPC Inc., P.O. Box 8950, Wilmington, Delaware 19899. 20 [This Page Intentionally Left Blank] 21 [This Page Intentionally Left Blank] 22 - -------------------------------------------------------------------------------- DIRECTORS E. Garrett Bewkes, Jr. Meyer Feldberg CHAIRMAN George W. Gowen Margo N. Alexander Frederic V. Malek Richard Q. Armstrong Carl W. Schafer Richard R. Burt Brian M. Storms Mary C. Farrell PRINCIPAL OFFICERS Margo N. Alexander Paul H. Schubert PRESIDENT VICE PRESIDENT AND TREASURER Victoria E. Schonfeld Elbridge T. Gerry, III VICE PRESIDENT VICE PRESIDENT Dianne E. O'Donnell Richard S. Murphy VICE PRESIDENT AND SECRETARY VICE PRESIDENT Dennis L. McCauley VICE PRESIDENT INVESTMENT ADVISER AND ADMINISTRATOR MITCHELL HUTCHINS ASSET MANAGEMENT INC. 51 WEST 52ND STREET NEW YORK, NEW YORK 10019 THE FINANCIAL INFORMATION INCLUDED HEREIN IS TAKEN FROM THE RECORDS OF THE FUND WITHOUT EXAMINATION BY INDEPENDENT AUDITORS WHO DO NOT EXPRESS AN OPINION THEREON. NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT COMPANY ACT OF 1940 THAT FROM TIME TO TIME THE FUND MAY PURCHASE SHARES OF ITS COMMON STOCK IN THE OPEN MARKET AT MARKET PRICES. THIS REPORT IS SENT TO THE SHAREHOLDERS OF THE FUND FOR THEIR INFORMATION. IT IS NOT A PROSPECTUS, CIRCULAR OR REPRESENTATION INTENDED FOR THE USE IN THE PURCHASE OR SALE OF SHARES OF THE FUND OR OF ANY SECURITIES MENTIONED IN THIS REPORT. - ----------------- INSURED MUNICIPAL INCOME FUND INC. SEMIANNUAL REPORT PaineWebber (C)1999 PaineWebber Incorporated Member SIPC All rights reserved. SEPTEMBER 30, 1999 -----END PRIVACY-ENHANCED MESSAGE-----