SEPTEMBER 30, 1997
==================
INSURED
MUNICIPAL
INCOME FUND INC.
SEMIANNUAL REPORT
PaineWebber [Logo]
(C)1997 PaineWebber Incorporated
Member SIPC
<PAGE>
INSURED MUNICIPAL INCOME FUND INC. SEMIANNUAL REPORT
November 14, 1997
Dear Shareholder,
We are pleased to present the semiannual report for Insured Municipal
Income Fund Inc. for the six months ended September 30, 1997.
GENERAL MARKET OVERVIEW
================================================================================
[GRAPHIC OMITTED] The Federal Reserve's decision to raise short-term interest
rates in March contributed to negative returns in virtually every bond sector
for the first quarter of 1997. Good news, however, came on April 28, when the
report of the Employment Cost Index--considered the most comprehensive
wage-inflation indicator, and critical to Fed policy--presented a very positive
inflation picture. This information, combined with other factors, turned market
sentiment extremely bullish. Bonds entered a prolonged rally that, supported
by additional favorable data, continued through July and into the beginning of
August. Municipal bonds generally outperformed during this rally, as new issue
supply withered and demand increased from the June/July rollover of maturing
municipal bonds. September ended the fiscal period on a positive note, as the
prevailing theme in the market was that above-trend economic growth could occur
without generating higher inflation. The final result: the yield on the 30-year
Treasury bond declined by almost 40 basis points from where it had been three
months prior, which coincided with a compression of municipal credit spreads.
PORTFOLIO REVIEW
================================================================================
[GRAPHIC OMITTED] PERFORMANCE--The Fund's total return for the six months ended
September 30, 1997, based on the Fund's common stock net asset value was
9.76%, while the Fund's total return for the same time period based on the
Fund's market value was 14.80%. As of September 30, 1997, the Fund's net
asset value per share was $15.08, and its share price on the New York Stock
Exchange was $13.38.
The Fund paid dividends from net investment income to common shareholders,
which totaled $0.38 per share of common stock during the six months ended
September 30, 1997. The Fund has paid a monthly dividend of $0.064 per
share of common stock since July 1995. Given the current interest rate
environment, we anticipate that the monthly dividend will remain unchanged
for the remainder of 1997.
During the fiscal period, the Fund easily outperformed the 7.57% return of
its Lipper
INSURED MUNICIPAL INCOME
FUND INC.
FUND PROFILE
[ARROW] Goal:
High current income
exempt from Federal
income tax,
consistent with the
preservation of
capital
[ARROW] Portfolio Managers:
Elbridge T. Gerry III
and Richard Murphy,
MHAsset Management Inc.
[ARROW] Total Net Assets:
$461.0 million as of
September 30, 1997
[ARROW] Dividend Payments:
Monthly
1
<PAGE>
SEMIANNUAL REPORT
Insured Municipal Debt peer group.
PORTFOLIO HIGHLIGHTS--The low interest rate environment that existed
throughout the semiannual period was extremely conducive to the Fund's long
duration portfolio, and contributed greatly to its strong showing over the
period.
OUTLOOK
================================================================================
[GRAPHIC OMITTED] Near term, we foresee continued above-trend economic
growth. We anticipate that long rates will remain stable and, therefore, we
will maintain a neutral duration strategy. Finally, we will continue to
diversify across the maturity curve to dampen share price volatility.
Relative to other taxable securities, we believe that municipal bonds will
remain attractive. Given the municipal markets' correlation to technical factors
such as supply and demand, we will continue to take advantage of inefficiencies
as they arise. As always, we will monitor the municipal environment on a
state-by-state basis, as well as the relative value relationships between
municipal sectors. Additionally, we will seek municipal bonds that provide more
upside potential with relatively less downside risk.
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.
Sincerely,
/s/MARGO N. ALEXANDER /s/ELBRIDGE T. GERRY III /s/RICHARD S. MURPHY
- --------------------- ------------------------ --------------------
MARGO N. ALEXANDER ELBRIDGE T. GERRY III RICHARD S. MURPHY
President, Senior Vice President, Senior Vice President,
Mitchell Hutchins Mitchell Hutchins Mitchell Hutchins
Asset Management Inc. Asset Management Inc. Asset Management Inc.
Portfolio Manager, Portfolio Manager,
Insured Municipal Insured Municipal
Income Fund Inc. Income Fund Inc.
This letter is intended to assist shareholders in understanding how the
Fund performed during the six months ended September 30, 1997 and reflects our
views at the time we are writing this report. Of course, these views may change
in response to changing circumstances. We encourage you to consult your
investment executive regarding your personal investment program.
INSURED MUNICIPAL INCOME FUND INC.
Top Five States (as a %
of net assets as of
September 30, 1997)
[The following represents a bar chart in the printed report.]
Illinois 15.7%
Texas 10.8%
Pennsylvania 9.4%
Rhode Island 7.0%
Nevada 5.7%
INSURED MUNICIPAL INCOME FUND INC.
Top Five Sectors (as a %
of net assets as of
September 30, 1997)
[The following represents a bar chart in the printed report.]
Power 22.0%
Water 20.6%
Hospitals 18.9%
Sales Tax 12.0%
General Obligations 9.6%
2
<PAGE>
INSURED MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1997 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
-------- -------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Long-Term Municipal Bonds--96.38%
Alabama--1.54%
$ 1,625 Alabama Water Pollution Control
Authority -- Revolving Fund Loan
Series A (AMBAC Insured) ................... Aaa AAA 08/15/17 6.750% $ 1,823,851
5,400 Birmingham Special Care Facilities
Finance Authority -- Birmingham
Baptist Medical Center (MBIA Insured) ...... Aaa AAA 08/15/23 5.500 5,297,346
-----------
7,121,197
-----------
Alaska--1.12%
5,000 Anchorage General Obligation Bonds
(AMBAC Insured) ............................ Aaa AAA 06/01/23 6.250 5,155,900
-----------
California--2.30%
30 California State (FGIC Insured) .............. Aaa AAA 11/01/12 7.000 34,528
970 California State (Pre-refunded with U.S.
Government Securities to 11/01/04 @ 102)
(FGIC Insured) ............................. Aaa AAA 11/01/12 7.000 1,147,607
1,585 Contra Costa Water District (FGIC Insured) ... Aaa AAA 10/01/13 6.000 1,674,410
5,000 Los Angeles County Sales Tax Commission
Sales Tax Revenue Series B (FGIC Insured)... Aaa AAA 07/01/15 6.500 5,442,250
2,250 Los Angeles Wastewater System
(MBIA Insured) ............................. Aaa AAA 06/01/20 5.700 2,294,573
-----------
10,593,368
-----------
Delaware--2.24%
10,000 Delaware State Economic Development
Authority Delmarva Power (MBIA Insured) .... Aaa AAA 06/01/21 5.900 10,316,100
-----------
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 4,173,960
-----------
Illinois--15.71%
4,000 Illinois Development Finance Authority
Pollution Refunding Commonwealth Edison
Company Project Series D (AMBAC Insured) ... Aaa AAA 03/01/15 6.750 4,482,080
4,500 Illinois Health Facilities Authority
Franciscan Sisters Health Care
(MBIA Insured) ............................. Aaa AAA 09/01/18 5.750 4,574,115
10,000 Illinois Municipal Electric Agency
(AMBAC Insured) ............................ Aaa AAA 02/01/21 5.750 10,154,900
8,000 Central Lake County Joint Action Water
Agency (FGIC Insured) ...................... Aaa AAA 05/01/20 5.375 7,770,480
3
<PAGE>
INSURED MUNICIPAL INCOME FUND INC.
Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
-------- -------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Illinois (concluded)
$11,400 Chicago -- O'Hare International Airport
(MBIA Insured) ............................ Aaa AAA 01/01/15 5.500 to 6.375% $ 12,211,644
17,220 Chicago 911 System (FGIC Insured) ............ Aaa AAA 01/01/23 5.625 17,325,214
4,600 Chicago Public Building Commission
(MBIA Insured) ............................ Aaa AAA 12/01/18 5.750 4,713,988
8,000 Regional Transportation Authority
(AMBAC Insured) ........................... Aaa AAA 06/01/22 6.125 8,279,200
2,750 Regional Transportation Authority
(FGIC Insured) ............................ Aaa AAA 06/01/23 to 06/01/25 5.850 to 7.100 2,914,663
------------
72,426,284
------------
Indiana--4.76%
2,500 Indiana Health Facilities Finance Authority
Columbus Regional Hospital
(CGIC Insured) ............................ Aaa AAA 08/15/22 5.500 2,453,325
7,835 Indianapolis Gas & Utilities (FGIC Insured) .. Aaa AAA 06/01/21 5.375 7,594,701
12,000 Marion County Convention Center
(AMBAC Insured) ........................... Aaa AAA 06/01/21 5.500 11,904,840
-------------
21,952,866
-------------
Iowa--1.02%
4,625 Ames Hospital Authority -- Mary Greeley
Medical Center (AMBAC Insured) ........... Aaa AAA 08/15/22 5.750 4,718,471
-------------
Kentucky--4.64%
1,150 Kentucky Development Finance Authority
Hospital Revenue -- St. Luke Hospital
Incorporated Series A (MBIA Insured) ....... Aaa AAA 10/01/21 7.000 1,287,885
17,530 Louisville & Jefferson County
(AMBAC Insured) ............................ Aaa AAA 05/15/24 to 05/15/25 6.500 to 6.750 20,095,100
-------------
21,382,985
-------------
Louisiana--3.17%
2,000 Louisiana Public Facilities Authority
Alton Oschner Hospital
(AMBAC Insured) ............................ Aaa AAA 05/15/17 6.000 2,065,720
8,500 Louisiana Public Facilities Authority
Alton Oschner Hospital (MBIA Insured) ...... Aaa AAA 05/15/11 5.750 8,752,705
1,710 Louisiana Public Facilities Authority
Tulane University (FGIC Insured) ........... Aaa AAA 02/15/18 5.750 1,757,401
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 2,025,734
------------
14,601,560
-------------
4
<PAGE>
INSURED MUNICIPAL INCOME FUND INC.
Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
-------- -------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Maine--2.06%
$ 9,390 Maine Health & Higher Educational
Facilities (FSA Insured) .................. Aaa AAA 07/01/23 to 07/01/24 5.500 to 7.000% $ 9,496,096
-----------
Massachusetts--2.40%
10,000 Massachusetts State Health & Education
Facility Brigham & Woman's Hospital
(MBIA Insured) ............................ Aaa AAA 07/01/24 6.750 11,047,100
-----------
Michigan--1.93%
8,770 Michigan State Housing Finance Authority
(AMBAC Insured) ........................... Aaa AAA 04/01/23 5.900 8,913,302
-----------
Nevada--5.72%
7,750 Clark County Airport -- McCarran International
Airport (AMBAC Insured) ................... Aaa AAA 07/01/22 6.000 8,143,545
4,000 Clark County General Obligation Bonds
(AMBAC Insured) ........................... Aaa AAA 06/01/16 6.000 4,288,120
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 11,863,515
-----------
26,372,200
-----------
New Hampshire--1.30%
5,000 New Hampshire Higher Education &
Health Authority -- Lakes Region
Hospital (FGIC Insured) ................... Aaa AAA 01/01/17 5.500 5,002,500
1,000 New Hampshire Higher Education &
Health Authority -- University of
New Hampshire (MBIA Insured) .............. Aaa AAA 07/01/24 5.750 1,013,990
-----------
6,016,490
-----------
New Jersey--1.22%
5,000 Salem County Industrial Pollution Control
Refunding Public Service Electric
and Gas Series D (MBIA Insured) ........... Aaa AAA 10/01/29 6.550 5,615,550
-----------
New Mexico--3.31%
9,100 Gallup Pollution Control Revenue
Plains Electric (MBIA Insured) ............ Aaa AAA 08/15/17 6.650 10,068,422
4,700 Santa Fe Water Revenue (AMBAC Insured) ....... Aaa AAA 06/01/24 6.300 5,205,814
-----------
15,274,236
-----------
5
<PAGE>
INSURED MUNICIPAL INCOME FUND INC.
Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
-------- -------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
North Carolina--0.94%
$ 4,000 Piedmont Triad Airport Authority Airport
Revenue Series A (MBIA Insured) ........... Aaa AAA 07/01/16 6.750% $ 4,321,600
-----------
Ohio--0.76%
3,000 Cleveland Public Power Systems Revenue
First Mortgage Series A (MBIA Insured) .... Aaa AAA 11/15/24 7.000 3,510,810
----------
Pennsylvania--9.43%
16,435 Pennsylvania Intergovernmental
Cooperative Authority (MBIA Insured) ...... Aaa AAA 06/15/15 to 06/15/23 5.600 to 5.625 16,612,113
2,675 Pennsylvania Intergovernmental
Cooperative Authority Philadelphia
Funding Program (FGIC Insured) ............ Aaa AAA 06/15/14 7.000 3,108,190
6,130 North Wales Water Authority (FGIC Insured) ... Aaa AAA 11/01/16 5.500 6,167,454
17,500 Philadelphia Water & Waste Authority
(CGIC Insured) ............................. Aaa AAA 06/15/15 5.500 17,585,750
-----------
43,473,507
-----------
Rhode Island--7.04%
14,000 Rhode Island Convention Center Authority
(AMBAC Insured) ........................... Aaa AAA 05/15/27 5.750 14,434,560
10,000 Rhode Island Depositors Economic
Protection Corporation (FSA Insured) ...... Aaa AAA 08/01/14 5.750 10,763,100
7,000 Rhode Island Depositors Economic
Protection Corporation (MBIA Insured) ..... Aaa AAA 08/01/21 5.250 7,258,160
-----------
32,455,820
-----------
South Carolina--3.89%
15,000 South Carolina Public Services Authority
(MBIA Insured) ............................ Aaa AAA 07/01/21 to 07/01/31 5.500 to 6.000 15,314,800
2,625 Charleston County Hospital Facilities
Authority Bon Secours Health System
(FSA Insured) ............................. Aaa AAA 08/15/25 5.625 2,638,886
-----------
17,953,686
-----------
Tennessee--1.11%
5,000 Sullivan County Health Education and
Housing Facilities Board -- Holston
Valley Health (MBIA Insured) .............. Aaa AAA 02/15/20 5.750 5,095,800
-----------
Texas--10.82%
7,000 Austin Utilities System (AMBAC Insured) ...... Aaa AAA 11/15/16 5.750 7,158,130
13,675 Bexar Metro Water District (MBIA Insured) .... Aaa AAA 05/01/22 5.875 14,165,659
6
<PAGE>
INSURED MUNICIPAL INCOME FUND INC.
Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
-------- -------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Texas (concluded)
$10,000 Lubbock Health Facilities- Methodist
Hospital (AMBAC Insured) ................. Aaa AAA 12/01/22 5.900% $ 10,305,900
9,005 Matagorda County Navigation
District 1 Revenue -- Houston
Light & Power (AMBAC Insured) ............. Aaa AAA 03/01/27 6.700 9,915,586
7,550 San Antonio Water Authority
(MBIA Insured) ............................ Aaa AAA 05/15/16 6.000 7,845,205
450 San Antonio Water Authority
(Pre-refunded with U.S. Government
Securities to 05/15/02 @ 100)
(MBIA Insured) ............................ Aaa AAA 05/15/16 6.000 482,602
-------------
49,873,082
-------------
Washington--2.05%
4,000 Washington State Health Care Facilities
Tacoma Hospital (FGIC Insured) ............ Aaa AAA 08/15/22 5.750 4,044,920
5,000 Metropolitan Seattle Sewer (MBIA Insured) .... Aaa AAA 01/01/33 6.300 5,402,650
-------------
9,447,570
-------------
West Virginia--3.93%
5,220 West Virginia School Building Authority
(MBIA Insured) ............................ Aaa AAA 07/01/20 6.000 5,473,901
2,245 West Virginia State Water Development
Authority (FSA Insured) ................... Aaa AAA 11/01/29 5.750 2,295,804
10,000 Marshall County Pollution Authority
Ohio Power (MBIA Insured) ................. Aaa AAA 04/01/22 5.900 10,330,000
-------------
18,099,705
-------------
Wisconsin--1.06%
1,500 Wisconsin Health & Educational Facilities
Bellin Memorial Hospital (AMBAC Insured) .. Aaa AAA 02/15/19 5.500 1,477,665
3,500 Wisconsin State Health & Educational
Facilities -- Hospital Sisters Health
System (MBIA Insured) ..................... Aaa AAA 06/01/18 5.375 3,433,395
-------------
4,911,060
-------------
Total Long-Term Municipal Bonds (cost-- $421,954,629) .. 444,320,305
-------------
Short-Term Municipal Notes--2.17%
Alaska--0.07%
300 Valdez Marine Terminal Revenue
Exxon Pipeline Company Project ............ P1 A1+ 10/01/97 3.800* 300,000
-------------
7
<PAGE>
INSURED MUNICIPAL INCOME FUND INC.
Principal
Amount Moody's S&P Maturity Interest
(000) Rating Rating Dates Rates Value
-------- -------- -------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Arizona--0.17%
$ 800 Pinal County Pollution Control Revenue ........... P1 A1+ 10/01/97 3.800%* $ 800,000
------------
Florida--0.02%
100 Hillsborough County Pollution Control Revenue .... VMIG1 A1+ 10/01/97 4.000* 100,000
------------
Louisiana--0.35%
1,600 Louisiana State Offshore Terminal Revenue ........ VMIG1 A1+ 10/01/97 3.750* 1,600,000
------------
New York--0.87%
1,500 New York City .................................... VMIG1 A1+ 10/01/97 3.800 to 4.000* 1,500,000
400 New York City Series B (AMBAC Insured) ........... VMIG1 A1+ 10/01/97 3.850* 400,000
1,300 New York City Series B (MBIA Insured) ............ VMIG1 A1+ 10/01/97 3.750 to 3.850* 1,300,000
800 New York City Municipal Water Finance Authority
Water & Sewer Systems Revenue Series A
(FGIC Insured) ................................ VMIG1 A1+ 10/01/97 4.100* 800,000
------------
4,000,000
-------------
Wyoming--0.69%
3,000 Lincoln County Pollution Control Revenue
(Exxon Project) ............................... P1 A1+ 10/01/97 3.800* 3,000,000
200 Platte County Pollution Control Revenue .......... P1 NR 10/01/97 3.950* 200,000
------------
3,200,000
------------
Total Short-Term Municipal Notes (cost--$10,000,000) ....... 10,000,000
------------
Total Investments (cost -- $431,954,629) -- 98.55% ......... 454,320,305
Other assets in excess of liabilities -- 1.45% ............. 6,667,964
------------
Net Assets--100.00% ........................................ $460,988,269
============
</TABLE>
- ---------------
* 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, 1997.
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
8
<PAGE>
INSURED MUNICIPAL INCOME FUND INC.
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments in securities, at value (cost-- $431,954,629) .................................................. $454,320,305
Cash ....................................................................................................... 74,029
Interest receivable ........................................................................................ 7,394,688
Deferred organizational expenses ........................................................................... 35,985
Other assets ............................................................................................... 553
------------
Total assets ............................................................................................... 461,825,560
------------
Liabilities:
Dividends payable to preferred shareholders ................................................................ 346,608
Payable to investment adviser and administrator ............................................................ 292,565
Accrued expenses and other liabilities ..................................................................... 198,118
------------
Total liabilities .......................................................................................... 837,291
------------
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 ................................................................................... 302,703,762
Undistributed net investment income ........................................................................ 723,428
Accumulated net realized losses from investment transactions ............................................... (14,804,597)
Net unrealized appreciation of investments ................................................................. 22,365,676
------------
Net assets applicable to common shareholders ............................................................... 310,988,269
------------
Total net assets ........................................................................................... $460,988,269
============
Net asset value per common share ($310,988,269 applicable to 20,628,363 common shares outstanding) ......... $15.08
======
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
INSURED MUNICIPAL INCOME FUND INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months
Ended
September 30, 1997
(unaudited)
---------------------
<S> <C>
Investment income:
Interest ................................................................................................... $12,901,444
-----------
Expenses:
Investment advisory and administration ..................................................................... 2,042,015
Auction Preferred Shares expenses .......................................................................... 299,492
Custody and accounting ..................................................................................... 136,753
Reports and notices to shareholders ........................................................................ 78,647
Legal and audit ............................................................................................ 70,435
Transfer agency and service fees ........................................................................... 25,643
Amortization of organizational expenses .................................................................... 24,658
Directors' fees ............................................................................................ 5,250
Other expenses ............................................................................................. 28,872
-----------
2,711,765
Less: Fee waivers from adviser ............................................................................. (471,374)
-----------
Net expenses ............................................................................................... 2,240,391
-----------
Net investment income ...................................................................................... 10,661,053
-----------
Realized and unrealized gains from investment activities:
Net realized gains from investment transactions --
Net change in unrealized appreciation/depreciation of investments .......................................... 20,242,276
-----------
Net unrealized gain from investment activities ............................................................. 20,242,276
-----------
Net increase in net assets resulting from operations ....................................................... $30,903,329
===========
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
INSURED MUNICIPAL INCOME FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six Months
Ended For the Year
September 30, 1997 Ended
(unaudited) March 31, 1997
------------------ --------------
<S> <C> <C>
From operations:
Net investment income ................................................................... $ 10,661,053 $ 21,676,988
Net change in unrealized appreciation/depreciation of investments ....................... 20,242,276 (791,037)
------------ ------------
Net increase in net assets resulting from operations .................................... 30,903,329 20,885,951
------------ ------------
Dividends from:
Net investment income-- common stockholders ............................................. (7,921,291) (15,842,583)
Net investment income-- preferred stockholders .......................................... (2,752,144) (5,325,257)
------------ ------------
Total dividends to stockholders ......................................................... (10,673,435) (21,167,840)
------------ ------------
Net increase (decrease) in net assets ................................................... 20,229,894 (281,889)
Net assets:
Beginning of period ..................................................................... 440,758,375 441,040,264
------------ ------------
End of period (including undistributed net investment income of $723,428
and $735,810, respectively) .......................................................... $460,988,269 $440,758,375
============ ============
</TABLE>
See accompanying notes to financial statements
11
<PAGE>
INSURED MUNICIPAL INCOME FUND INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months
Ended
September 30, 1997
(unaudited)
----------------
<S> <C>
Cash flows provided (used) by operating activities:
Interest received .......................................................................................... $12,850,080
Expenses paid (net of fee waivers) ......................................................................... (1,965,523)
Purchase of short-term portfolio investments, net .......................................................... (250,000)
-----------
Net cash provided by operating activities .................................................................. 10,634,557
-----------
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 ........................................ (2,689,949)
-----------
Net cash used for financing activities ..................................................................... (10,611,240)
-----------
Net increase in cash ....................................................................................... 23,317
Cash at beginning of period ................................................................................ 50,712
-----------
Cash at end of period ...................................................................................... $ 74,029
===========
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 ....................................................... $30,903,329
-----------
Increase in investments, at value .......................................................................... (20,538,072)
Increase in interest receivable ............................................................................ (5,568)
Amortization of deferred organizational expenses ........................................................... 24,658
Decrease in other assets ................................................................................... 7,996
Increase in payable to investment adviser and administrator ................................................ 196,162
Increase in accrued expenses and other liabilities ......................................................... 176,767
-----------
Total adjustments ............................................................................ ............. (20,268,772)
-----------
Net cash provided by operating activities .................................................................. $10,634,557
===========
</TABLE>
See accompanying notes to financial statements
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Insured Municipal Income Fund Inc. (the "Fund" ) was incorporated in
Maryland on February 18, 1993, and is registered with the Securities and
Exchange Commission as a closed-end diversified management investment company.
Organizational costs have been deferred and are being amortized on the
straight-line method over a period not to exceed 60 months from the date the
Fund commenced operations.
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 -- Where market quotations are readily available,
portfolio securities are valued thereon, provided such quotations adequately
reflect the fair value of the securities, in the judgment of Mitchell Hutchins
Asset Management Inc. ("Mitchell Hutchins"), a wholly owned asset management
subsidiary of PaineWebber Incorporated, investment adviser and administrator of
the Fund. 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 certain debt obligations with 60 days or less remaining
to maturity, unless the Fund's board of directors determines that this does not
represent fair value.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME -- Investment transactions
are recorded on the trade date. Realized gains and losses from investment
transactions are calculated 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 with the Advisory Contract, Mitchell Hutchins receives
compensation from the Fund, computed weekly and paid
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
monthly, at the annual rate of 0.90% of the Fund's average weekly net
assets. For the six months ended September 30, 1997, Mitchell Hutchins
voluntarily waived $471,374 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, 1997 was substantially the same as the cost of securities for financial
statement purposes.
At September 30, 1997, the components of the net unrealized appreciation of
investments were as follows:
<TABLE>
<CAPTION>
<S> <C>
Gross appreciation (from investments having an excess of value over cost) ........................ $22,365,676
Gross depreciation (from investments having an excess of cost over value) ........................ --
-----------
Net unrealized appreciation of investments ....................................................... $22,365,676
===========
</TABLE>
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, 1997, the Fund had a net capital loss carryforward of
$14,804,597 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, 15,366 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 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 3.30% to 4.10% for the six months ended September 30,
1997. Effective January 6, 1997, 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.
14
<PAGE>
INSURED MUNICIPAL INCOME FUND INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout each period is
presented below:
<TABLE>
<CAPTION>
For the Six
Months Ended For the Period
September 30, 1997 For the Years Ended March 31, June 8, 1993 to
(unaudited) 1997 1996 1995 March 31,1994
---------------- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............................ $14.10 $14.11 $13.42 $13.42 $15.00
----- ------ ----- ------ ------
Net investment income ........................................... 0.52 1.05 1.06 1.02** 0.73
Net realized and unrealized gains (losses) from
investments .................................................. 0.97 (0.03) 0.67 0.04 (1.44)
----- ------ ----- ------ -------
Net increase (decrease) from investment operations .............. 1.49 1.02 1.73 1.06 (0.71)
----- ------ ----- ------ -------
Dividends and distributions:
From net investment income-- common stockholders .............. (0.38) (0.77) (0.76) (0.79) (0.60)
From net investment income-- preferred stockholders ........... (0.13) (0.26) (0.28) (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 stockholders ............... (0.51) (1.03) (1.04) (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 .................................. $15.08 $14.10 $14.11 $13.42 $13.42
===== ====== ===== ====== ======
Per share market value, end of period ........................... $13.38 $12.00 $12.13 $11.13 $13.00
===== ====== ===== ===== ======
Total investment return(1) ...................................... 14.80% 5.45% 16.13% (8.17)% (9.74)%
===== ====== ===== ===== ======
Ratios to average net assets attributable to common shares:
Total expenses net of waivers from adviser .................... 1.48%* 1.38% 1.33% 1.74% 1.57%*
Total expenses before waivers from adviser .................... 1.79%* 1.76% 1.65% 1.74% 1.57%*
Net investment income before preferred stock dividends ........ 7.03%* 7.37% 7.45% 7.94% 5.92%*
Preferred stock dividends ..................................... 1.81%* 1.81% 1.97% 2.02% 0.98%*
Net investment income available to common stockholders ........ 5.22%* 5.56% 5.48% 5.92% 4.94%*
Supplemental data:
Net assets, end of period (000's) .............................$460,988 $440,758 $441,040 $426,795 $333,825
Portfolio turnover rate ....................................... 0% 0% 4% 4 8%
Asset coverage per share of preferred stock, end of period ....$153,663 $146,919 $147,013 $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 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.
15
<PAGE>
INSURED MUNICIPAL INCOME FUND INC.
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 asset management subsidiary of PaineWebber
Incorporated, which has over $47 billion in assets under management as of
October 31, 1997.
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 17, 1997. 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 were selected to serve as directors until the next
annual meeting of shareholders, or until their successors are elected and
qualified.
ALL SHARES VOTING AS A SINGLE CLASS:
PROPOSAL 1
To vote for or against the election of:
Shares For Voted Shares Without Authority
---------------- ------------------------
Richard Q. Armstrong ............ 19,469,956.793 257,283.859
E. Garrett Bewkes, Jr. .......... 19,475,130.998 252,109.654
Richard Burt .................... 19,499,956.793 227,283.859
Mary C. Farrell ................. 19,478,143.778 231,741.859
George W. Gowen ................. 19,484,344.778 249,096.874
Frederic V. Malek ............... 19,484,344.778 242,895.874
Carl W. Schafer ................. 19,471,529.778 255,710.874
<TABLE>
<CAPTION>
PROPOSAL 2 Shares For Voted Shares Withhold Authority Shares Against
---------------- ------------------------- --------------
<S> <C> <C> <C>
Ratification of the
selection of Ernst &
Young LLP as
independent auditors ... 19,509,000.193 125,537.490 92,702.969
</TABLE>
16
<PAGE>
AUCTION PREFERRED SHARES:
PROPOSAL 3
To vote for or against the election of:
Shares For Voted Shares Withhold Authority
---------------- ------------------------
Margo N. Alexander .............. 2,022 0
Meyer Feldberg .................. 2,022 0
(BROKER NON-VOTES AND ABSTENTIONS ARE INCLUDED WITHIN THE "SHARES WITHHOLD
AUTHORITY" TOTALS.)
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.
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 Fund
will not issue any new shares of common stock in connection with the Plan.
17
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================================================================================
DIRECTORS
E. Garrett Bewkes, Jr.
Chairman
Margo N. Alexander
Richard Q. Armstrong
Richard R. Burt
Mary C. Farrell
Meyer Feldberg
George W. Gowen
Frederic V. Malek
Carl W. Schafer
PRINCIPAL OFFICERS
Margo N. Alexander
President
Victoria E. Schonfeld
Vice President
Dianne E. O'Donnell
Vice President and Secretary
Dennis L. McCauley
Vice President
Paul H. Schubert
Vice President and Treasurer
Elbridge T. Gerry III
Vice President
Richard S. Murphy
Vice President
INVESTMENT ADVISER AND
ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
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.
