<PAGE>
INSURED
MUNICIPAL INCOME
FUND
(FORMERLY PAINEWEBBER PREMIER
INSURED MUNICIPAL INCOME FUND INC.)
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1995
<PAGE>
- --------------------------------------------------------------------------------
Dear Shareholder,
During the six months ended September 30, 1995, the pace of U.S. economic growth
slowed in response to the Federal Reserve Board's repeated increases in the
benchmark Federal Funds rate, the rate banks charge each other for overnight
borrowing. With seven short-term interest rate hikes between February 1994 and
February 1995, the Federal Reserve Board raised the Federal Funds rate to 6.0%,
and effectively doubled short-term interest rates in twelve months. On July 6,
1995, the Federal Reserve cut the benchmark Federal Funds rate by 0.25%. This
decrease, the first in nearly three years, signals that the Federal Reserve
Board believes that inflationary pressures have eased enough to accommodate an
adjustment in monetary policy from restrictive toward neutral.
MUNICIPAL MARKET OVERVIEW
During the first few months of 1995, the municipal market rebounded strongly
from the lows reached in 1994, when the Fed's monetary tightening policy
negatively affected municipal securities prices. The predominant theme in the
municipal market early in 1995 was the lack of supply in the municipal market
place. After years of high volume, new issue supply declined dramatically in
1994. A record $292 billion in new bonds were issued in 1993, while in 1994 new
issue supply was reduced to $164 billion. Estimates for new issue supply in 1995
are approximately $144 billion. With fewer bonds entering the market, demand is
generally exceeding supply, pushing up the prices of existing bonds.
This positive momentum during the first few months of 1995 culminated in a
municipal bond market rally. Unfortunately, two events derailed the market's
performance. Continued fall-out from the Orange County, California bankruptcy
cast a pall on the market and investors became increasingly nervous about
whether or not municipal bonds were secure. In addition, in the spring of 1995,
politicians began exploring alternative restructuring ideas for the Federal tax
code. Under certain proposals, the benefit of Federal tax-exemption would no
longer be enjoyed solely by municipal bonds. If this were to happen, municipal
bonds would no longer present as attractive an investment as they are now. As a
result, the demand for municipals tapered off. We believe, however, that
municipal bonds will continue to be a tax-advantaged product and that other
forms of investments will continue to be subject to taxation. Given the nature
of the political process, the final results of tax reform will probably not be
clear until after the 1996 election. We will monitor this and keep the portfolio
responsive to any changing investment environment.
PORTFOLIO REVIEW
Effective August 14, 1995, PaineWebber Premier Insured Municipal Income Fund
commenced doing business under its trade name, Insured Municipal Income Fund
(the 'Fund'). Municipal market performance during the six months ended September
30, 1995 was initially bolstered by the lack of new issue supply in 1995.
However, new tax restructuring proposals and continued fallout from the Orange
County bankruptcy stalled the market's performance during the last several
months. The Fund's total return for the six months ended September 30, 1995,
based on the Fund's net asset value was 6.50%, while the Fund's total return for
the same time period based on the Fund's market value was 6.76%. As of September
30, 1995, the Fund's net asset value per share was $13.91, while its share price
on the New York Stock Exchange was $11.50.
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<PAGE>
- --------------------------------------------------------------------------------
The Fund paid dividends from net investment income to common shareholders, which
totalled $0.37 per share of common stock during the six months ended September
30, 1995. On July 10th, 1995, the Fund declared a monthly dividend of $0.064 per
common share, a 6.67% increase in the Fund's payout. The Fund's dividends
benefitted from Mitchell Hutchins Asset Management Inc. voluntarily waiving
0.25% of the 0.90% annualized management fees from June 1 through September 30,
1995. In addition, the Fund's dividends were affected by the decreases in
short-term interest rates. As short-term rates decreased, the benefit derived
from the Fund's Auction Preferred Shares ('APS') increased, increasing the
dividend paid to the Fund's common shareholders.
As you know, the Fund's dividends have benefitted in the past 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. As always, our goal is to provide the best use
of leverage for the Fund to the common shareholders.
All of the Fund's long-term securities are insured by major bond insurers. As of
September 30, 1995, the breakdown by insurers of bonds in the portfolio was as
follows:
[INSERT PIE CHART]
MBIA 43.88%
AMBAC 30.68%
FGIC 15.34%
FSA 5.58%
CGIC 4.52%
As of September 30, 1995, the Fund's largest sectors as a percentage of the
portfolio included: power, 22.3%; water, 20.4%; and hospital, 19.0%. During this
period, the Fund's greatest concentrations of issues by state were Illinois,
15.7%; Texas, 10.9%; and Pennsylvania, 9.4%.
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 of short-term interest rates will continue to decline. In
addition, we believe the fundamentals are favorable for municipal bonds. With
low new issue
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
supply expected for the remainder of 1995, the probable supply/demand imbalance
is favorable. While all the talk about flat tax proposals may make for
interesting conversation for the remainder of 1995 and the election year, we
believe it is unlikely to pass through the legislature and into law. Our
long-term outlook is for strength in the municipal market after the domestic
economic picture becomes clearer.
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/ Gregory W. Serbe
GREGORY W. SERBE
Managing Director,
Mitchell Hutchins Asset Management Inc.
Portfolio Manager,
Insured Municipal Income Fund
- --------------------------------------------------------------------------------
3
<PAGE>
INSURED MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of Investments
September 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--96.31%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
----- --------- -------- ---------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
ALABAMA--1.56%
$ 1,625 Alabama Water Pollution
Authority Control Revolving
Fund Loan Series A
(AMBAC Insured)............. Aaa AAA 08/15/17 6.750% $ 1,752,350
5,400 Birmingham Special Care
Facilities Finance Authority
Birmingham Baptist Medical
Center
(MBIA Insured).............. Aaa AAA 08/15/23 5.500 5,063,796
------------
6,816,146
------------
ALASKA--1.16%
5,000 Anchorage General Obligation
Bonds
(AMBAC Insured)............. Aaa AAA 06/01/23 6.250 5,060,600
------------
CALIFORNIA--2.31%
1,000 California State
(FGIC Insured).............. Aaa AAA 11/01/12 7.000 1,119,830
1,585 Contra Costa Water District
(FGIC Insured).............. Aaa AAA 10/01/13 6.000 1,595,937
5,000 Los Angeles County Sales Tax
Commission Sales Tax Revenue
Series B
(FGIC Insured).............. Aaa AAA 07/01/15 6.500 5,225,050
2,250 Los Angeles Wastewater System
(MBIA Insured).............. Aaa AAA 06/01/20 5.700 2,163,420
------------
10,104,237
------------
DELAWARE--2.26%
10,000 Delaware State Economic
Development Authority
Delmarva Power
(MBIA Insured).............. Aaa AAA 06/01/21 5.900 9,868,800
------------
DISTRICT OF COLUMBIA--0.89%
4,000 District of Columbia Hospital
Revenue Bonds
Medlantic Health Care Group
(MBIA Insured).............. Aaa AAA 08/15/14 5.750 3,914,080
------------
ILLINOIS--15.70%
4,000 Illinois Development Finance
Authority Pollution
Refunding Commonwealth
Edison Company Project
Series D
(AMBAC Insured)............. Aaa AAA 03/01/15 6.750 4,287,960
4,500 Illinois Health Facilities
Authority Franciscan Sisters
Health Care
(MBIA Insured).............. Aaa AAA 09/01/18 5.750 4,333,500
10,000 Illinois Municipal Electric
Agency
(AMBAC Insured)............. Aaa AAA 02/01/21 5.750 9,587,600
</TABLE>
4
<PAGE>
INSURED MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS-- (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
----- --------- -------- ---------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
ILLINOIS (CONCLUDED)
$ 8,000 Central Lake County Joint
Action Water Agency
(FGIC Insured).............. Aaa AAA 05/01/20 5.375% $ 7,351,280
11,400 Chicago--O'Hare International 5.500
Airport to
(MBIA Insured).............. Aaa AAA 01/01/15 6.375 11,507,520
17,220 Chicago 911 System
(FGIC Insured).............. Aaa AAA 01/01/23 5.625 16,290,464
4,600 Chicago Public Building
(MBIA Insured).............. Aaa AAA 12/01/18 5.750 4,439,828
8,000 Regional Transportation
Authority
(AMBAC Insured)............. Aaa AAA 06/01/22 6.125 8,014,320
2,750 Regional Transportation 06/01/23 5.850
Authority to to
(FGIC Insured).............. Aaa AAA 06/01/25 7.100 2,782,788
------------
68,595,260
------------
INDIANA--4.73%
2,500 Indiana Health Facilities
Finance Authority Columbus
Regional Hospital
(CGIC Insured).............. Aaa AAA 08/15/22 5.500 2,312,075
7,835 Indianapolis Gas & Utilities
(FGIC Insured).............. Aaa AAA 06/01/21 5.375 7,177,879
12,000 Marion County Convention
Center
(AMBAC Insured)............. Aaa AAA 06/01/21 5.500 11,188,320
------------
20,678,274
------------
IOWA--1.02%
4,625 Ames Hospital Authority
Mary Greeley Medical Center
(AMBAC Insured)............. Aaa AAA 08/15/22 5.750 4,471,219
------------
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 1,273,752
17,530 Louisville & Jefferson County 05/15/24 6.500
(AMBAC Insured)............. Aaa AAA to to
05/15/25 6.750 18,815,196
------------
20,088,948
------------
LOUISIANA--3.23%
2,000 Louisiana Public Facilities
Authority
Alton Oschner Hospital
(AMBAC Insured)............. Aaa AAA 05/15/17 6.000 1,987,820
8,50 Louisiana Public Facilities
Authority
Alton Oschner Hospital
(MBIA Insured).............. Aaa AAA 05/15/11 5.750 8,455,885
</TABLE>
5
<PAGE>
INSURED MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS-- (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
----- --------- -------- ---------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
LOUISIANA (CONCLUDED)
$ 1,870 Louisiana Public Facilities
Authority
Tulane University
(Pre-refunded with U.S.
Government Securities to
02/15/03 @102).............. Aaa AAA 02/15/18 5.750% $ 2,021,301
1,710 Louisiana Public Facilities
Authority
Tulane University
(FGIC Insured).............. Aaa AAA 02/15/18 5.750 1,671,969
------------
14,136,975
------------
MAINE--2.07%
9,390 Maine Health & Higher 07/01/23 5.500
Educational Facilities to to
(FSA Insured)............... Aaa AAA 07/01/24 7.000 9,022,676
------------
MASSACHUSETTS--2.45%
10,000 Massachusetts State Health &
Education Facility
Brigham & Woman's Hospital
(MBIA Insured).............. Aaa AAA 07/01/24 6.750 10,688,200
------------
MICHIGAN--1.94%
8,770 Michigan State Housing Finance
Authority
(AMBAC Insured)............. Aaa AAA 04/01/23 5.900 8,458,227
------------
NEVADA--5.69%
7,750 Clark County Airport
McCarran International
Airport
(AMBAC Insured)............. Aaa AAA 07/01/22 6.000 7,637,470
4,000 Clark County General
Obligation Bonds
(AMBAC Insured)............. Aaa AAA 06/01/16 6.000 3,966,840
2,000 Clark County Sanitation
District
(FGIC Insured).............. Aaa AAA 07/01/11 5.700 1,987,460
11,500 Washoe County Gas and Water
Sierra Power
(MBIA Insured).............. Aaa AAA 06/01/23 5.900 11,253,210
------------
24,844,980
------------
NEW HAMPSHIRE--1.29%
5,000 New Hampshire Higher Education
& Health Authority
Lakes Regional Hospital
(FGIC Insured).............. Aaa AAA 01/01/17 5.500 4,695,700
1,000 New Hampshire Higher Education
& Health Authority
University of New Hampshire
(MBIA Insured).............. Aaa AAA 07/01/24 5.750 956,600
------------
5,652,300
------------
</TABLE>
6
<PAGE>
INSURED MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS-- (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
----- --------- -------- ---------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
NEW JERSEY--1.21%
$ 5,000 Salem County Industrial
Pollution Control
Refunding Public Service
Electric and Gas Series D
(MBIA Insured).............. Aaa AAA 10/01/29 6.550% $ 5,281,050
------------
NEW MEXICO--3.33%
9,100 Gallup Pollution Control
Revenue
Plains Electric
(MBIA Insured).............. Aaa AAA 08/15/17 6.650 9,694,867
4,700 Santa Fe Water Revenue
(AMBAC Insured)............. Aaa AAA 06/01/24 6.300 4,833,715
------------
14,528,582
------------
NORTH CAROLINA--0.99%
4,000 Piedmont Triad Airport
Authority
Airport Revenue Series A
(MBIA Insured).............. Aaa AAA 07/01/16 6.750 4,304,680
------------
OHIO--0.77%
3,000 Cleveland Public Power Systems
Revenue
First Mortgage Series A
(MBIA Insured).............. Aaa AAA 11/15/24 7.000 3,374,310
------------
PENNSYLVANIA--9.39%
16,435 Pennsylvania Intergovernmental 06/15/15 5.600
Cooperative Authority to to
(MBIA Insured).............. Aaa AAA 06/15/23 5.625 15,614,202
2,675 Pennsylvania Intergovernmental
Cooperative Authority
Philadelphia Funding Program
(FGIC Insured).............. Aaa AAA 06/15/14 7.000 2,964,943
6,130 North Wales Water Authority
(FGIC Insured).............. Aaa AAA 11/01/16 5.500 5,786,536
17,500 Philadelphia Water & Waste
Authority
(CGIC Insured).............. Aaa AAA 06/15/15 5.500 16,649,675
------------
41,015,356
------------
RHODE ISLAND--6.76%
14,000 Rhode Island Convention Center
Authority
(AMBAC Insured)............. Aaa AAA 05/15/27 5.750 13,428,940
10,000 Rhode Island Depositors
Economic Protection
Corporation
(FSA Insured)............... Aaa AAA 08/01/14 5.750 9,852,200
7,000 Rhode Island Depositors
Economic Protection
Corporation
(MBIA Insured).............. Aaa AAA 08/01/21 5.250 6,255,410
------------
29,536,550
------------
</TABLE>
7
<PAGE>
INSURED MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS-- (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
----- --------- -------- ---------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
SOUTH CAROLINA--3.90%
$ 2,625 Charleston County Hospital
Facilities Authority
Bon Secours Health System
(FSA Insured)............... Aaa AAA 08/15/25 5.625% $ 2,464,586
15,000 South Carolina Public Services 07/01/21 5.500
Authority to to
(MBIA Insured).............. Aaa AAA 07/01/31 6.000 14,589,350
------------
17,053,936
------------
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 4,821,900
------------
TEXAS--10.94%
7,000 Austin Utilities System
(AMBAC Insured)............. Aaa AAA 11/15/16 5.750 6,807,710
13,675 Bexar Metro Water District
(MBIA Insured).............. Aaa AAA 05/01/22 5.875 13,502,011
10,000 Lubbock Health Facilities
Methodist Hospital
(AMBAC Insured)............. Aaa AAA 12/01/22 5.900 9,839,300
9,005 Matagorda County Navigation
District 1 Revenue Houston
Light & Power A
(AMBAC Insured)............. Aaa AAA 03/01/27 6.700 9,643,545
8,000 San Antonio Water Authority
(MBIA Insured).............. Aaa AAA 05/15/16 6.000 8,007,840
------------
47,800,406
------------
WASHINGTON--2.05%
5,000 Metropolitan Seattle Sewer
(MBIA Insured).............. Aaa AAA 01/01/33 6.300 5,094,100
4,000 Washington State Health Care
Facilities
Tacoma Hospital
(FGIC Insured).............. Aaa AAA 08/15/22 5.750 3,841,240
------------
8,935,340
------------
WEST VIRGINIA--3.92%
10,000 Marshall County Pollution
Authority Ohio Power
(MBIA Insured).............. Aaa AAA 04/01/22 5.900 9,790,100
5,220 West Virginia School Building
Authority
(MBIA Insured).............. Aaa AAA 07/01/20 6.000 5,179,441
2,245 West Virginia State Water
Development Authority
(FSA Insured)............... Aaa AAA 11/01/29 5.750 2,157,490
------------
17,127,031
------------
</TABLE>
8
<PAGE>
INSURED MUNICIPAL INCOME FUND
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS-- (concluded)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
----- --------- -------- ---------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
WISCONSIN--1.05%
$ 1,500 Wisconsin Health & Educational
Facility
Bellin Memorial Hospital
(AMBAC Insured)............. Aaa AAA 02/15/19 5.500% $ 1,393,815
3,500 Wisconsin State Health &
Educational Facilities
Hospital Sisters Health
System
(MBIA Insured).............. Aaa AAA 06/01/18 5.375 3,202,220
------------
4,596,035
------------
TOTAL LONG-TERM MUNICIPAL NOTES (cost--$421,775,938)....... 420,776,098
------------
</TABLE>
- ------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL NOTES--2.15%
- ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ALASKA--0.16%
700 Valdez Alaska Marine Terminal
Revenue Exxon Pipeline
Company Project*............ P1 A-1+ 10/01/25 4.400 700,000
------------
LOUISIANA--0.07%
300 Louisiana Offshore*........... P1 A-1+ 09/01/08 4.500 300,000
------------
NEW YORK--1.35%
4,400 New York City*................ VMIG1 A-1+ 08/15/04 4.600
to to
08/01/20 4.750 4,400,000
1,500 New York Energy Research
Pollution Control*.......... VMIG1 A-1+ 02/01/29 4.300 1,500,000
------------
5,900,000
------------
WYOMING--0.57%
2,500 Lincoln County Pollution 01/01/14 4.400
Control* to to
(Exxon)..................... P1 A-1+ 08/01/15 4.600 2,500,000
------------
TOTAL SHORT-TERM MUNICIPAL NOTES (cost--$9,400,000)........ 9,400,000
------------
TOTAL INVESTMENTS (cost--$431,175,938)--98.46%............. 430,176,098
Other assets in excess of liabilities--1.54%............... 6,715,205
------------
NET ASSETS--100.00%........................................ $436,891,303
------------
------------
</TABLE>
- ------------------
* Variable rate demand notes are payable on demand. The maturity dates shown
are the stated maturities; the interest rates shown are the current rates as
of September 30, 1995 and reset daily or weekly.
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>
INSURED MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
September 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost--$431,175,938)....... $430,176,098
Cash........................................................... 4,788
Interest receivable............................................ 7,162,934
Deferred organizational expenses............................... 172,604
Other assets................................................... 2,668
------------
Total assets................................................. 437,519,092
------------
LIABILITIES
Payable to investment adviser and administrator................ 233,668
Dividends payable to preferred shareholders.................... 242,668
Accrued expenses and other liabilities......................... 151,453
------------
Total liabilities............................................ 627,789
------------
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.......................... (7,997)
Accumulated net realized losses from investment transactions... (879,188)
Net unrealized depreciation of investments..................... (999,840)
------------
Net assets applicable to common shareholders................. 286,891,303
------------
Total net assets............................................. $436,891,303
------------
------------
Net asset value per common share ($286,891,303 applicable to
20,628,363 common shares outstanding)....................... $ 13.91
------------
------------
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
INSURED MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the Six Months Ended September 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest....................................................... $12,789,709
-----------
EXPENSES:
Investment advisory and administration......................... 1,962,907
Auction Preferred Shares expenses.............................. 184,750
Custody and accounting......................................... 74,289
Reports and notices to shareholders............................ 36,838
Amortization of organizational expenses........................ 30,855
Legal and audit................................................ 30,418
Transfer agency and service expenses........................... 15,661
Directors' fees................................................ 4,500
Other expenses................................................. 3,723
-----------
2,343,941
Less: Fee waivers from adviser.................................... (363,144)
-----------
Net expenses...................................................... 1,980,797
-----------
NET INVESTMENT INCOME............................................. 10,808,912
-----------
REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES:
Net realized gains from investment transactions................ 976,239
Net change in unrealized appreciation/depreciation of
investments.................................................. 8,934,243
-----------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES...... 9,910,482
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.............. $20,719,394
-----------
-----------
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
INSURED MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
SEPTEMBER ENDED
30, 1995 MARCH 31,
(UNAUDITED) 1995
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income........................... $ 10,808,912 $ 17,868,156
Net realized gains (losses) from investment
transactions.................................. 976,239 (905,404)
Net change in unrealized
appreciation/depreciation of investments...... 8,934,243 12,047,873
------------ ------------
Net increase in net assets resulting from
operations.................................... 20,719,394 29,010,625
------------ ------------
DIVIDENDS AND DISTRIBUTIONS:
From net investment income--common
stockholders.................................. (7,673,750) (13,609,047)
From net investment income--preferred
stockholders.................................. (2,949,084) (4,555,746)
In excess of net investment income--common
stockholders.................................. -- (321,858)
In excess of net investment income--preferred
stockholders.................................. -- (102,981)
------------ ------------
Total dividends and distributions to
stockholders................................... (10,622,834) (18,589,632)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from the acquisition of PaineWebber
Premier Intermediate Tax-Free Income Fund Inc.
(net of reorganization costs of $286,400)..... -- 82,548,499
------------ ------------
Net increase in net assets...................... 10,096,560 92,969,492
NET ASSETS:
Beginning of period............................ . 426,794,743 333,825,251
------------ ------------
End of period................................... $436,891,303 $426,794,743
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
INSURED MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
Statement of Cash Flows
For the Six Months Ended September 30, 1995 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Interest received............................................. $ 13,087,040
Expenses paid (net of fee waivers)............................ (2,137,525)
Sale of short-term portfolio investments, net................. 200,000
Purchase of long-term portfolio investments................... (13,097,368)
Sale of long-term portfolio investments....................... 12,523,960
------------
Net cash provided by operating activities..................... 10,576,107
------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Dividends paid from net investment income to common
stockholders................................................ (7,673,750)
Dividends paid from net investment income to preferred
stockholders................................................ (2,906,314)
------------
Net cash used for financing activities........................ (10,580,064)
------------
NET DECREASE IN CASH............................................. (3,957)
CASH AT BEGINNING OF PERIOD...................................... 8,745
------------
CASH AT END OF PERIOD............................................ $ 4,788
------------
------------
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.......... $ 20,719,394
------------
Increase in cost of investments............................... (1,388,693)
Net change in unrealized appreciation/depreciation of
investments................................................. (8,934,243)
Decrease in interest receivable............................... 336,377
Decrease in deferred organizational expenses.................. 30,855
Decrease in other assets...................................... 7,918
Decrease in payable to investment adviser and administrator... (90,976)
Decrease in accrued expenses and other liabilities............ (104,525)
------------
Total adjustments.......................................... (10,143,287)
------------
Net cash provided by operating activities..................... $ 10,576,107
------------
------------
</TABLE>
See accompanying notes to financial statements
13
<PAGE>
INSURED MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Insured Municipal Income Fund (formerly 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.
Effective August 14, 1995, the Fund commenced conducting business under the name
'Insured Municipal Income Fund.' The Board of Directors approved the change of
the Fund's name at a meeting held on June 2, 1995, subject to shareholder
approval of the change. 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.
Valuation of Investments--Where market quotations are readily available,
portfolio securities are valued thereon, 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.
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 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. Discounts are accreted and premiums are amortized
as adjustments to interest income and the identified cost of securities.
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.
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 $13,925,432 at
March 31, 1995 pursuant to its reorganization with PaineWebber Premier
Intermediate Tax-Free Income Fund Inc. ('Premier Intermediate Fund'). 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.
14
<PAGE>
INSURED MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
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 stockholders are recorded on the ex-dividend date.
Dividends to preferred stockholders are accrued daily. Dividends from net
investment income and distributions from realized gains from investment
transactions have been 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 reclassifications.
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 Premier Intermediate Fund 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 Fund and
600 Auction Preferred Shares Series A of Premier Intermediate Fund for 600
Auction Preferred Shares Series D of the Fund on November 28, 1994.
Premier Intermediate Fund's net assets at that date were valued at
$82,811,775 which included 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. For the six months ended
September 30, 1995, Mitchell Hutchins voluntarily waived $363,144 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, 1995, was substantially the same as the cost of securities for financial
statement purposes.
15
<PAGE>
INSURED MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At September 30, 1995, the components of the net unrealized depreciation of
investments were as follows:
Gross depreciation (from investments having an excess of
cost over value).......................................... $ (8,014,337)
Gross appreciation (from investments having an excess of
value over cost).......................................... 7,014,497
------------
Net unrealized depreciation of investments.................. $ (999,840)
------------
------------
For the six months ended September 30, 1995, total aggregate purchases and
sales of portfolio securities were $13,097,368 and $12,523,960, respectively.
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, 6,667 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 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 Premier Intermediate 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 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 3.49% to 4.15% for the six months ended September 30,
1995. Effective October 23, 1995, Series A reset to a special dividend period of
364 days.
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>
INSURED MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
Quarterly Results of Operations (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
- ---------------------- ------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
September 30, 1995.... $ 5,469 $0.26 $ 6,949 $0.34 $ 12,418 $ 0.60
June 30, 1995......... 5,340 0.26 2,961 0.14 8,301 0.40
------- ----- -------- ----- -------- ------
Totals.......... $10,809 $0.52 $ 9,910 $0.48 $ 20,719 $ 1.00
------- ----- -------- ----- -------- ------
------- ----- -------- ----- -------- ------
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)
------- ----- -------- ----- -------- ------
------- ----- -------- ----- -------- ------
</TABLE>
- ---------------
* 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>
INSURED MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of common stock outstanding throughout each
period:
<TABLE>
<CAPTION>
For the Six
Months Ended For the For the Period
September 30, 1995 Year Ended June 8, 1993+ to
(unaudited) March 31, 1995 March 31, 1994
------------------ -------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period...................... $ 13.42 $ 13.42 $ 15.00
--------------- ------------- --------------
Net investment income..................................... 0.52 1.02** 0.73
Net realized and unrealized gains (losses) from investment
transactions............................................ 0.48 0.04 (1.44)
--------------- ------------- --------------
Net increase (decrease) from investment operations........ 1.00 1.06 (0.71)
--------------- ------------- --------------
Dividends and distributions:
From net investment income--common stockholders......... (0.37) (0.79) (0.60)
From net investment income--preferred stockholders...... (0.14) (0.25) (0.13)
In excess of net investment income--common
stockholders......................................... -- (0.02) --
In excess of net investment income--preferred
stockholders......................................... -- --++ --
--------------- ------------- --------------
Total dividends and distributions to shareholders......... (0.51) (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............................ $ 13.91 $ 13.42 $ 13.42
--------------- ------------- --------------
--------------- ------------- --------------
Per share market value, end of period..................... $ 11.50 $ 11.13 $ 13.00
--------------- ------------- --------------
--------------- ------------- --------------
Total investment return(1)................................ 6.76% (8.17)% (9.74)%
--------------- ------------- --------------
--------------- ------------- --------------
Ratios to average net assets attributable to common
shares:
Total expenses, net of waivers from adviser............. 1.38%* 1.74% 1.57%*
Total expenses, before waivers from adviser............. 1.64%* 1.74% 1.57%*
Net investment income before preferred stock
dividends............................................ 7.56%* 7.94% 5.92%*
Preferred stock dividends............................... 2.06%* 2.02% 0.98%*
Net investment income available to common
stockholders ........................................ 5.50%* 5.92% 4.94%*
Supplemental data:
Net assets, end of period (000's)....................... $ 436,891 $ 426,795 $ 333,825
Portfolio turnover rate................................. 3% 4% 8%
Asset coverage per share of preferred stock, end of
period .............................................. $ 145,630 $ 142,265 $ 139,094
</TABLE>
- ------------------
+ Commencement of operations
++ 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 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>
INSURED MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
THE FUND
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 $44 billion in assets under management as of October 31, 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 week in Barron's, as well as in
numerous other newspapers.
DISTRIBUTION POLICY
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.
19
<PAGE>
INSURED MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
Shareholder Information
- --------------------------------------------------------------------------------
The annual meeting of shareholders of the Fund was held on July 27, 1995.
At the meeting Margo N. Alexander and Meyer Feldberg were elected by
shareholders of Auction Preferred Shares ('APS') to serve as directors until the
annual meeting of shareholders in 1996, or until their successors are elected
and qualified. Richard Q. Armstrong, E. Garrett Bewkes, Jr., Richard R. Burt,
John R. Torell, III and William D. White were elected by holders of outstanding
common stock and APS to serve as directors until the annual meeting of
shareholders in 1996, or until their successors are elected and qualified. The
selection of Ernst & Young LLP as the Fund's independent auditors was ratified.
The votes were as follows:
All Shares Voting Together
------------------------------------
Shares Voted Shares Withhold
For Authority
---------- ----------
Richard Q. Armstrong............... 19,714,975 153,784
E. Garret Bewkes, Jr............... 19,724,318 144,441
Richard R. Burt.................... 19,716,765 151,994
John R. Torell, III................ 19,716,765 151,994
William D. White................... 19,710,734 158,025
Auction Preferred Shares
------------------------------------
Shares Voted Shares Withhold
For Authority
---------- ----------
Meyer Feldberg..................... 1,457 102
Margo N. Alexander................. 1,457 102
All Shares Voting Together
------------------------------------
Shares Shares Shares
Voted Voted Withhold
For Against Authority
---------- ---------- ----------
Ratification of the selection of
Ernst & Young LLP................ 19,747,260 58,589 62,911
Broker non-votes and abstentions are included within the 'Shares Withhold
Authority' totals.
20
<PAGE>
------------------------------------
DIRECTORS
E. Garrett Bewkes, Jr., Chairman
Margo N. Alexander
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.
The financial information included
herein is taken from the records of
the Fund without examination by
independent auditors, who do not
express an opinion thereon.
This report is sent to the
shareholders of the Fund for their
information. It is not a prospectus,
circular or representation intended
for use in the purchase or sale of
shares of the Fund or of any
securities mentioned in the report.
(Copyright) 1995 PaineWebber
Incorporated
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