INVESTMENT
GRADE
MUNICIPAL
INCOME
FUND INC.
=========================
SEPTEMBER 30, 2001
ANNUAL REPORT
INVESTMENT GRADE MUNICIPAL INCOME FUND INC. ANNUAL REPORT
November 15, 2001
Dear Shareholder,
We present you with the annual report for the Investment Grade Municipal
Income Fund Inc. for the fiscal year ended September 30, 2001.
Q&A WITH PORTFOLIO MANAGER
FRANK BIONDO
================================================================================
[GRAPHIC OMITTED]
HOW DID THE FUND PERFORM DURING THE FISCAL YEAR RELATIVE TO ITS PEERS?
For the fiscal year ended September 30, 2001, the Fund advanced 8.60% based on
net asset value. In contrast, the Lipper General Municipal Debt Funds
(Leveraged) Median returned 12.97%. The Fund underperformed its peer group on a
net asset basis primarily due to its short duration versus its peers. Because
the Fund maintained a higher cash or short-term position, we missed some of the
upside potential afforded by the steep yield curve. We continue to move toward a
more neutral position as opportunities present themselves and will continue to
look for opportunities that are created due to the inefficient nature of the
municipal market.
WHAT MARKET FACTORS AFFECTED THE FUND'S PERFORMANCE?
The Federal Reserve's ("The Fed's") crusade to prop up the weakening economy by
reducing the Fed Funds rate from 6.5% at the beginning of the year to 3.0% at
the end of September 2001 caused the steepest municipal yield curve from two to
30 years since 1993. This caused the short end of the yield curve to rally
considerably since the beginning of the year. The rate cuts also prompted a
flurry of year-to-date municipal bond activity, as new issuance increased 34.2%
and refunding of existing debt was up over 227% since January 1, 2001.
GIVEN THE NATION'S ECONOMIC SLOWDOWN, DID YOU MAKE ANY CHANGES TO THE FUND'S
INVESTMENTS DURING THE PAST SIX MONTHS?
We did not make any significant credit changes to the Fund, but we made
structural yield curve positioning changes due to the overall change in the
yield curve. Our credit research has long anticipated that there would be a
period of recession after such a long period of growth. We continue to monitor
the credits in the portfolio for any deterioration in the credit quality. From a
credit perspective, we continue to monitor and vigorously stress-test all the
securities in the portfolio to ensure credit stability.
DID THE ENERGY CRISIS IN CALIFORNIA LAST SPRING OR SEPTEMBER'S TERRORIST ATTACKS
HAVE AN EFFECT ON THE FUND'S PERFORMANCE?
The California crisis has not had a significant impact on the Fund's
performance, as our exposure to the California market has been very small. Our
research team has maintained a cautious outlook on the California market since
January and we have been reluctant to add to our exposure in the state.
California credits have traded at historically high levels since the beginning
of the year versus other state credits, so we feel that better opportunities are
available in other state credits.
The September 11 attacks did have an impact, not only on the economy as a whole,
but on the municipal market. We saw a temporary interruption in market liquidity
due to the tragic loss of life suffered by Cantor Fitzgerald, a prominent bond
broker. The Fund, however, was not damaged as badly as it could have been, since
our exposure to hotels, airlines and airport credits is a small percentage of
the portfolio. In particular, our exposure to airport credits has been very
selective. However, we believe that there is value in selective airport revenue
bonds. Thus, we will look to add to our general airport revenue bond exposure as
opportunities present themselves.
----------------------------------
INVESTMENT GRADE MUNICIPAL
INCOME FUND INC.
INVESTMENT GOAL:
High level of current
income exempt from
federal income tax,
consistent with
preservation of capital
PORTFOLIO MANAGER:
Frank Biondo
Brinson Advisors, Inc.
COMMENCEMENT:
November 6, 1992
NYSE SYMBOL:
PPM
DIVIDEND PAYMENTS:
Monthly
1
ANNUAL REPORT INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
AFTER THE CALIFORNIA CRISIS, IS THERE ANY CONCERN ABOUT POWER-RELATED SECURITIES
IN THE PORTFOLIO?
We believe the Fund's exposure to power related securities is well diversified
across many different credits, so we do not have major concerns in this area.
HAVE RECENT MARKET CONDITIONS PRESENTED BUYING OR SELLING OPPORTUNITIES?
The recent market conditions have presented us with structural opportunities,
such as buying premium coupon bonds with short calls in the 14 to 20-year range.
From a credit perspective, widening spreads between general airport revenue
bonds and high-grade bonds have presented a buying opportunity. Our research
team has identified those airport credits that should withstand the
deterioration in the economy and in the airline industry.
HOW IS THE FUND POSITIONED TO ACCOMMODATE THE UNCERTAIN ECONOMIC AND MARKET
ENVIRONMENT?
We look at yield curve mispricings to focus on the ideal overall maturity by
using an internal technical analysis approach. Our top-down approach helps us
determine sector attractiveness and the bottom-up approach is used to determine
security attractiveness. Given our long-term investment objective and leverage,
the optimal structural positioning of the Fund is to continue to look for
premium coupons in the 14 to 20-year range of the yield curve. We will continue
to look for credit situations that present the most value on a relative basis.
Since the hospital sector may be affected, as the potential exists for lower
Medicaid and Medicare payments while the country spends money on security
concerns, we will keep a cautious outlook in this sector. The defensive
positioning should help us over the long haul.
WHAT IS AHEAD FOR THE ECONOMY AND MUNI MARKET?
Municipal issuance and refunding issuance should continue to be robust.
Year-to-date refundings have surged past most estimates and, given the supply
and demand dynamics of many municipal issuers, we should witness an increase in
overall issuance next year compared to this year. Given the slowing economy, we
will continue to avoid those states and credits most susceptible to a
deteriorating economic environment. We will however, focus and search out
opportunistic relative value situations.
2
INVESTMENT GRADE MUNICIPAL INCOME FUND INC. ANNUAL REPORT
PORTFOLIO REVIEW
================================================================================
[GRAPHIC OMITTED]
AVERAGE ANNUAL RETURNS, PERIODS ENDED 9/30/01
NET ASSET VALUE RETURNS FUND LIPPER MEDIAN(1)
--------------------------------------------------------------------
6 Months 3.48% 3.84%
1 Year 8.60 12.97
5 Years 5.97 6.82
Since Inception 11/6/92 6.79 7.29
--------------------------------------------------------------------
MARKET PRICE RETURNS FUND LIPPER MEDIAN(1)
--------------------------------------------------------------------
6 Months 5.70% 5.41%
1 Year 20.59 15.35
5 Years 9.30 6.69
Since Inception 11/6/92 6.98 6.53
--------------------------------------------------------------------
(1) Lipper General Municipal Debt (Leveraged) Funds Median
Inception returns for Lipper Median are shown as of nearest month-end of
the Fund's inception: October 31, 1992. Past performance is no guarantee of
future results. The Fund's share price and investment return will vary so
that an investor's shares may be worth more or less than their original
cost. NAV and market price returns for periods of less than one year are
not annualized. NAV return assumes, for illustration only, that dividends
were reinvested at the net asset value on the ex-dividend dates.
SHARE PRICE, DIVIDEND AND YIELD 9/30/01
-------------------------------------------------------------------------------
Market Price $ 15.39
Net Asset Value $ 16.15
12-Month Dividend (ended 9/30/01) $ 0.90
September Dividend $0.0750
Market Yield* 5.85%
NAV Yield* 5.57%
IPO Yield* 6.00%
-------------------------------------------------------------------------------
* Market yield is calculated by multiplying the September dividend by 12 and
dividing by the September market price. NAV yield is calculated by
multiplying the September dividend by 12 and dividing by the September net
asset value. IPO yield is calculated by multiplying the September dividend
by 12 and dividing by the initial public offering price. Prices and yields
will vary.
PORTFOLIO STATISTICS
CHARACTERISTICS* 9/30/01 3/31/01
--------------------------------------------------------------------------------
Net Assets ($mm) $247.3 $246.2
Weighted Avg. Maturity 14.1 yrs 14.9 yrs
Weighted Avg. Duration 3.8 yrs 3.9 yrs
Weighted Avg. Coupon 6.1% 6.2%
AMT Paper 0% 0%
Leverage 32.4% 32.5%
Callable/Maturing Within Five Years 22.8% 21.3%
Callable/Maturing Beyond Five Years 77.2% 77.0%
--------------------------------------------------------------------------------
3
ANNUAL REPORT INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
PORTFOLIO STATISTICS (CONTINUED)
CREDIT QUALITY* 9/30/01 3/31/01
--------------------------------------------------------------------------------
Cash and Other Assets in Excess of Liabilities 2.9% 2.0%
AAA/Aaa 46.7 46.2
AA/Aa 24.4 30.6
A/A 8.2 5.8
BBB/Baa 8.4 8.3
Nonrated 9.4 7.1
--------------------------------------------------------------------------------
Total 100.0% 100.0%
TOP TEN STATES* 9/30/01 3/31/01
--------------------------------------------------------------------------------
Texas 22.2% Texas 24.0%
Illinois 9.5 New York 10.8
Indiana 9.3 Illinois 10.5
New York 8.9 Indiana 6.3
Wisconsin 5.0 Virginia 4.3
Virginia 4.3 Pennsylvania 4.1
Pennsylvania 4.1 California 4.0
California 4.0 Connecticut 3.7
Colorado 3.7 Kentucky 3.3
Connecticut 3.6 Nevada 2.9
--------------------------------------------------------------------------------
Total 74.6% Total 73.9%
TOP FIVE SECTORS* 9/30/01 3/31/01
--------------------------------------------------------------------------------
Water 16.8% Water 16.2%
Hospital 13.6 Power 12.7
Power 12.9 Hospital 10.9
Lease 11.2 General Obligation 7.8
Housing 6.3 Lease 6.3
--------------------------------------------------------------------------------
Total 60.8% Total 53.9%
Our ultimate objective in managing your investments is to help you successfully
meet your financial goals. We thank you for your continued support and welcome
any comments or questions you may have. For additional information on a fund
managed by Brinson Advisors, Inc.,(1) please contact your investment
professional or visit us at www.ubspainewebber.com.
Sincerely,
/s/ Brian M. Storms /s/ Frank J. Biondo
BRIAN M. STORMS FRANK J. BIONDO
President and Chief Operating Officer Brinson Advisors, Inc.
Brinson Advisors, Inc. Portfolio Manager,
Investment Grade
Municipal Income Fund Inc.
This letter is intended to assist shareholders in understanding how the Fund
performed during the fiscal year ended September 30, 2001, and reflects our
views at the time of its writing. Of course, these views may change in response
to changing circumstances. We encourage you to consult your investment
professional regarding your personal investment program.
* Weightings represent percentages of net assets as of the dates indicated.
The Fund's portfolio is actively managed and its composition will vary over
time.
(1) Mutual funds are sold by prospectus only. The prospectuses for the funds
contain more complete information regarding risks, charges and expenses,
and should be read carefully before investing.
4
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2001
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-------- ----------- ---------- -------- ------- ---------
LONG-TERM MUNICIPAL BONDS--97.06%
ALABAMA--1.88%
$ 4,600 Jefferson County Sewer Revenue
Series A (FGIC Insured) ......................... Aaa AAA 02/01/27 5.375% $4,643,194
----------
ARIZONA--0.43%
1,000 Scottsdale Municipal Property Corp.
Excise Tax Revenue (a) .......................... Aa1 AA+ 07/01/06 5.500 1,060,510
----------
ARKANSAS--0.79%
1,930 Little Rock Capital Improvement Revenue
Parks & Recreation Projects Series A ............ NR NR 01/01/18 5.700 1,949,802
----------
CALIFORNIA--4.03%
1,000 California Educational Facilities Authority
L.A. College of Chiropractic Medicine ........... Baa2 NR 11/01/17 5.600 1,020,400
3,000 California Statewide Communities
Development Authority
Irvine Apartment Communities Series A-3 ......... Baa2 BBB 05/17/10+ 5.100 3,064,980
2,150 Fontana Redevelopment Agency Tax Allocation
Jurupa Hills Redevelopment Project A ............ NR BBB+ 10/01/17 5.500 2,213,360
3,500 Metropolitan Water District of Southern California
Waterworks Series A ............................. Aaa AAA 03/01/18 5.250 3,660,020
----------
9,958,760
----------
COLORADO--3.67%
5,950 Arapahoe County Capital Improvement Trust Fund
Highway Revenue (Pre-refunded with U.S.
Government Securities to 08/31/05 @103) ......... Aaa AAA 08/31/26 7.000 6,987,977
2,000 University of Colorado Participation Interests .... NR A- 12/01/13 6.000 2,097,020
----------
9,084,997
----------
CONNECTICUT--3.62%
8,590 Connecticut Housing Finance Authority
Series A & B .................................... Aa2 AA 05/15/14 to 11/15/23 6.200 to 6.750 8,955,476
----------
GEORGIA--0.21%
500 Georgia Municipal Electric Authority Power Revenue
Series B ........................................ A2 A 01/01/16 6.375 519,380
----------
5
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-------- ----------- ---------- -------- ------- ---------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
ILLINOIS--9.43%
$ 7,380 Chicago Gas Supply Revenue People's Gas ............ Aa3 AA- 03/01/15 6.875% $7,645,237
5,000 Chicago Park District Parking
Facility Revenue ................................. Baa1 A 01/01/14 6.250 5,442,850
1,890 Illinois Toll & Highway Authority Series A
(Pre-refunded with U.S. Government Securities
to 01/01/03 @ 102) (FGIC Insured) ................ Aaa AAA 01/01/16 6.200 2,016,328
250 Metropolitan Pier & Exposition Authority ........... Aa3 AA- 06/15/27 6.500 261,048
6,350 Metropolitan Pier & Exposition Authority
(Pre-refunded with U.S. Government
Securities to 06/15/03 @ 102) .................... Aaa AAA 06/15/27 6.500 6,910,768
1,000 Naperville Electric Revenue ........................ Aa2 AA 05/01/12 5.700 1,056,880
----------
23,333,111
----------
INDIANA--9.15%
1,430 Indiana Transportation Finance Authority
Airport Facilities Series A ...................... A1 AA 11/01/16 6.250 1,467,366
6,000 Indianapolis Gas Utility Revenue Series A
(Pre-refunded with U.S. Government Securities
to 06/01/02 @ 102) (FGIC Insured) ................ Aaa AAA 06/01/23 6.200 6,282,960
2,000 Indianapolis Local Public Improvement Bond Bank
(Pre-refunded with U.S. Government Securities
to 07/01/03 @ 102) ............................... Aa2 AA- 07/01/10 6.000 2,162,240
3,400 Marion County Convention & Recreational Facilities
Authority-Excise Tax Revenue
(MBIA Insured) ................................... Aaa AAA 06/01/17 5.500 3,563,438
4,000 Marion County Hospital Authority Methodist
Hospital of Indiana (Escrowed to maturity) ....... Aa3 AAA 09/01/13 6.500 4,119,560
1,000 Purdue University Student Fee Revenue
Series B (Pre-refunded with U.S. Government
Securities to 01/01/05 @ 103) .................... Aa2 AA 07/01/15 6.700 1,141,540
3,780 Wayne Township Marion County School Building
Corp. First Mortgage ............................. NR A+ 01/15/15 to 07/15/15 5.250 3,887,201
----------
22,624,305
----------
KENTUCKY--3.24%
7,750 Boone County Pollution Control Revenue
Dayton Power & Light Co. ......................... A2 BBB+ 11/15/22 6.500 8,018,770
----------
MASSACHUSETTS--2.56%
6,000 Massachusetts Water Resources Authority Series A
(Pre-refunded with U.S. Government
Securities to 07/15/02 @ 102) .................... Aaa AAA 07/15/21 6.500 6,326,880
----------
6
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-------- ----------- ---------- -------- ------- ---------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
NEVADA--2.85%
$ 6,750 Clark County Pollution Control Revenue
Nevada Power Co. Project Series B
(FGIC Insured) ................................... Aaa AAA 06/01/19 6.600% $7,045,447
----------
NEW JERSEY--0.90%
2,000 New Jersey Transportation Trust Fund Authority
Transportation Systems Series A .................. Aa2 AA 06/15/11 5.500 2,220,680
----------
NEW YORK--8.91%
400 New York City General Obligation Series H .......... A2 A 02/01/16 7.000 412,692
7,345 New York City Municipal Water Finance Authority
Water & Sewer System Series A .................... Aa2 AA 06/15/17 6.000 7,599,357
5,500 New York City Transitional Finance Authority Revenue
Future Tax Secured Series B ...................... Aa2 AA+ 11/15/23 4.750 5,182,760
1,000 New York State Dormitory Authority Revenue
City University Series 2 ......................... A3 AA- 07/01/28 5.000 962,530
6,000 New York State Local Government Assistance Corp.
Series B (Pre-refunded with U.S. Government
Securities to 04/01/02 @ 102) .................... Aaa AA- 04/01/21 6.250 6,247,740
1,500 New York State Medical Care Facilities
Finance Agency
Revenue-Hospital and Nursing Homes Series D
(Pre-refunded with U.S. Government Securities to
02/15/03 @ 102) (FHA Insured) .................... NR NR 02/15/31 6.600 1,617,780
----------
22,022,859
----------
NORTH CAROLINA--2.36%
2,700 North Carolina Eastern Municipal Power Agency
Series A (Escrowed to maturity) .................. Baa3 BBB 01/01/21 6.400 3,160,188
1,630 North Carolina Municipal Power Agency
Catawba Electric Revenue ......................... Baa1 BBB+ 01/01/17 6.250 1,698,476
920 North Carolina Municipal Power Agency
Catawba Electric Revenue (Pre-refunded with
U.S. Government Securities to 01/01/03 @ 102) .... NR BBB+ 01/01/17 6.250 980,739
----------
5,839,403
----------
OHIO--0.88%
2,000 Ohio State Water Development Authority Revenue
Fresh Water Series B (FSA Insured) ............... Aaa AAA 06/01/16 to 12/01/17 5.500 2,183,930
----------
7
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-------- ----------- ---------- -------- ------- ---------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
PENNSYLVANIA--4.11%
$ 5,000 Northumberland County Authority Guaranteed Lease
Revenue-Mountain View Manor Project .............. NR NR 10/01/20 7.000% $4,882,100
2,500 Pennsylvania Turnpike Commission
Turnpike Revenue Series N (FGIC Insured) ......... Aaa AAA 12/01/19 5.500 2,501,875
2,680 Philadelphia School District Series A (MBIA Insured) Aaa AAA 04/01/15 5.250 2,780,929
----------
10,164,904
----------
RHODE ISLAND--2.60%
6,175 Rhode Island Housing & Mortgage Finance Corp.
Homeownership Opportunity Series 10-A ............ Aa2 AA+ 04/01/27 6.500 6,423,544
----------
SOUTH CAROLINA--2.62%
6,290 Richland County Pollution Control Revenue
Union Camp Corp. Project Series C ................ Baa2 BBB 11/01/20 6.550 6,479,895
----------
SOUTH DAKOTA--1.63%
4,064 Lower Brule Sioux Tribe++ .......................... NR NR 08/15/15 6.000 4,029,651
----------
TEXAS--22.13%
4,000 Coastal Bend Health Facilities-Incarnate Word
Health System (Escrowed to maturity)
(AMBAC Insured) .................................. Aaa AAA 01/01/17 6.300 4,481,640
10,000 Colorado River Texas Municipal Water District
Water Revenue (AMBAC Insured) .................... Aaa AAA 01/01/21 5.150 9,872,900
7,746 Harris County Texas Lease++ ........................ NR NR 05/01/20 6.750 7,801,563
915 Harris County Toll Road (AMBAC Insured) ............ Aaa AAA 08/15/17 6.500 960,384
3,007 Houston Community College System
Certificates of Participation++ .................. NR NR 06/15/25 7.875 3,045,586
2,000 Houston Refunding & Public Improvement Series A .... Aa3 AA- 03/01/15 5.250 2,066,940
3,000 Houston Water & Sewer System Revenue
Junior Lien Series C (FGIC Insured) .............. Aaa AAA 12/01/22 5.250 3,017,610
5,795 Houston Water & Sewer System Revenue
Junior Lien Series C (Pre-refunded with U.S.
Government Securities to 12/01/01 @ 102)
(AMBAC Insured) .................................. Aaa AAA 12/01/17 6.375 5,952,914
1,000 Houston Water & Sewer System Revenue
Prior Lien Series B (Pre-refunded with U.S.
Government Securities to 12/01/01 @ 102) ......... Aaa A+ 12/01/14 6.375 1,060,180
2,350 Port Corpus Christi Industrial Development Revenue
Valero Energy Corp. Series C ..................... Baa3 BBB- 04/01/18 5.400 2,331,999
8
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-------- ----------- ---------- -------- ------- ---------
LONG-TERM MUNICIPAL BONDS--(CONCLUDED)
TEXAS--(CONCLUDED)
$ 6,750 Sabine River Authority Pollution Control Revenue
Texas Utilities Electric Co. (FGIC Insured) ...... Aaa AAA 10/01/22 6.550% $7,108,425
1,875 San Antonio Electric & Gas Revenue Series A ........ Aa1 AA 02/01/21 4.500 1,709,587
5,000 Texas Health Facilities Development Corp.
All Saints Episcopal Hospital Series B
(MBIA Insured) ................................... Aaa AAA 08/15/22 6.250 5,315,100
------------
54,724,828
------------
VIRGINIA--4.28%
4,500 Virginia Beach Development Authority
Sentara Bayside Hospital (Pre-refunded with
U.S. Government Securities to 11/01/01 @ 102) .... Aa2 AA 11/01/21 6.300 4,606,650
5,815 Virginia Transportation Board Revenue
Route 28 Project ................................. Aa1 AA+ 04/01/18 6.500 5,986,194
------------
10,592,844
------------
WASHINGTON--1.94%
4,500 Metropolitan Seattle Sewer Revenue Series W
(Pre-refunded with U.S. Government Securities
to 01/01/03 @ 102) (MBIA Insured) ................ Aaa AAA 01/01/33 6.300 4,806,315
------------
WISCONSIN--2.84%
6,750 Wisconsin Health & Educational Facilities Authority
Sisters of Sorrowful Mother Health Care System
(MBIA Insured) ................................... Aaa AAA 06/01/20 6.250 7,013,992
------------
Total Long-Term Municipal Bonds (cost--$228,101,483) 240,023,477
------------
SHORT-TERM MUNICIPAL NOTES--3.28%
ARIZONA--0.04%
100 Maricopa County Pollution Control Corp. Revenue
Arizona Public Service Co. Series A .............. P1 A1+ 10/01/01 2.650* 100,000
------------
GEORGIA--0.12%
300 Hapeville Georgia Development Authority
Industrial Development Revenue
Hapeville Hotel Ltd. ............................. P1 NR 10/01/01 2.650* 300,000
------------
9
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
-------- ----------- ---------- -------- ------- ---------
SHORT-TERM MUNICIPAL NOTES--(CONCLUDED)
ILLINOIS--0.04%
$ 100 Illinois Health Facilities Authority Revenue
University of Chicago Hospitals (MBIA Insured) ... VMIG-1 A1 10/01/01 2.750%* $ 100,000
------------
INDIANA--0.12%
300 Princeton Industrial Pollution Control Revenue
PSI Energy, Inc. Project ......................... VMIG-1 A1+ 10/01/01 2.650* 300,000
------------
LOUISIANA--0.49%
1,200 Louisiana Public Facilities Authority Revenue
Industrial Development-Kenner Hotel Ltd. ......... P1 NR 10/01/01 2.650* 1,200,000
------------
MICHIGAN--0.16%
400 University of Michigan University Revenue
Medical Service Plan A-1 ......................... VMIG-1 A1+ 10/01/01 2.700* 400,000
------------
NEVADA--0.04%
100 Clark County School District Series B (FSA Insured) VMIG-1 A1+ 10/01/01 2.750* 100,000
------------
TEXAS--0.08%
200 Sabine River Authority Pollution Control Revenue
Daily Collateral Texas Utility Project
Series A (AMBAC Insured) ......................... VMIG-1 A1+ 10/01/01 2.700* 200,000
------------
WISCONSIN--2.19%
5,400 Wisconsin Health & Educational Facilities Authority
Gundersen Lutheran Series B
(FSA Insured) .................................... Aaa A1+ 10/01/01 2.800* 5,400,000
------------
Total Short-Term Municipal Notes (cost--$8,100,000) .......... 8,100,000
------------
Total Investments (cost--$236,201,483)--100.34% .............. 248,123,477
Liabilities in excess of other assets--(0.34)% ............... (828,947)
------------
Net Assets--100.00% ......................................... $247,294,530
============
(a) Security purchased on a when-issued basis.
+ The maturity date reflects the mandatory date bond will be put back to
issuer.
++ Illiquid securities representing 6.02% of net assets.
* Variable rate demand note is 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, 2001.
AMBAC -- American Municipal Bond Assurance Corporation.
FGIC -- Financial Guaranty Insurance Company.
FHA -- Federal Housing Authority.
FSA -- Financial Security Assurance.
MBIA -- Municipal Bond Investors Assurance.
See accompanying notes to financial statements
10
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2001
ASSETS:
Investments in securities, at value (cost--$236,201,483) ....... $248,123,477
Cash ........................................................... 73,247
Interest receivable ............................................ 4,118,306
Other assets ................................................... 1,218
------------
Total assets ................................................... 252,316,248
------------
LIABILITIES:
Payable for investments purchased .............................. 4,607,025
Payable to investment advisor and administrator ................ 157,922
Dividends payable to preferred shareholders .................... 104,076
Accrued expenses and other liabilities ......................... 152,695
------------
Total liabilities .............................................. 5,021,718
------------
NET ASSETS:
Auction Preferred Shares Series A & B--
1,600 non-participating shares authorized,
issued and outstanding; $0.001 par value;
$50,000 liquidation value per share ........................... 80,000,000
------------
Common Stock--$0.001 par value; 199,998,400 shares
authorized; 10,356,667 shares issued and outstanding ......... 153,674,147
Undistributed net investment income............................. 1,262,867
Accumulated net realized gain from investment transactions ..... 435,522
Net unrealized appreciation of investments ..................... 11,921,994
------------
Net assets applicable to common shareholders ................... 167,294,530
------------
Total net assets ............................................... $247,294,530
============
Net asset value per common share ($167,294,530 applicable
to 10,356,667 common shares outstanding) ..................... $16.15
======
See accompanying notes to financial statements
11
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
STATEMENT OF OPERATIONS
FOR THE YEAR
ENDED
SEPTEMBER 30,
2001
------------
INVESTMENT INCOME:
Interest ....................................................... $ 14,602,017
------------
EXPENSES:
Investment advisory and administration ......................... 2,213,747
Auction Preferred Shares expenses .............................. 256,925
Custody and accounting ......................................... 147,089
Professional fees .............................................. 58,022
Reports and notices to shareholders ............................ 46,450
Transfer agency fees ........................................... 22,579
Directors' fees ................................................ 10,500
Other expenses ................................................. 28,342
------------
2,783,654
Less: Fee waivers from advisor ................................. (307,465)
------------
Net expenses ................................................... 2,476,189
------------
NET INVESTMENT INCOME .......................................... 12,125,828
------------
REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES:
Net realized gain from investment transactions ................. 435,821
Net change in unrealized appreciation/depreciation
of investments ............................................... 4,249,989
------------
NET REALIZED AND UNREALIZED GAIN FROM INVESTMENT ACTIVITIES .... 4,685,810
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $ 16,811,638
============
See accompanying notes to financial statements
12
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED
SEPTEMBER 30,
---------------------------
2001 2000
------------ ------------
FROM OPERATIONS:
Net investment income ............................ $ 12,125,828 $ 12,193,148
Net realized gains from investment transactions .. 435,821 2,857,743
Net change in unrealized
appreciation/depreciation of investments ....... 4,249,989 (4,135,444)
------------ ------------
Net increase in net assets resulting
from operations ................................ 16,811,638 10,915,447
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO STOCKHOLDERS FROM:
Net investment income--common shareholders ....... (9,321,000) (9,321,000)
Net investment income--preferred shareholders .... (2,360,907) (3,241,281)
Net realized gain on investments--
common shareholders ............................ (1,919,090) (158,457)
Net realized gain on investments--
preferred shareholders ......................... (684,752) (43,712)
------------ ------------
Total dividends and distributions to shareholders (14,285,749) (12,764,450)
------------ ------------
Net increase (decrease) in net assets ............ 2,525,889 (1,849,003)
NET ASSETS:
Beginning of year ................................ 244,768,641 246,617,644
------------ ------------
End of year (including undistributed
net investment income of $1,262,867 and
$818,946, respectively) ........................ $247,294,530 $244,768,641
============ ============
See accompanying notes to financial statements
13
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR
ENDED
SEPTEMBER 30,
2001
------------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Interest received .............................................. $ 14,488,981
Expenses paid (net of fee waivers) ............................. (2,462,079)
Sale of short-term portfolio investments, net .................. 475,000
Purchase of long-term portfolio investments .................... (17,685,902)
Sale of long-term portfolio investments ........................ 19,583,790
------------
Net cash provided by operating activities ...................... 14,399,790
------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Dividends paid from net investment income
to common shareholders ...................................... (9,321,000)
Dividends paid from net investment income
to preferred shareholders ................................... (2,446,805)
Dividends paid from capital gains to common shareholders ....... (1,919,090)
Dividends paid from capital gains to preferred shareholders .... (684,752)
------------
Net cash used for financing activities ......................... (14,371,647)
------------
Net increase in cash ........................................... 28,143
Cash at beginning of year ...................................... 45,104
------------
Cash at end of year ............................................ $ 73,247
============
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 ........... $ 16,811,638
------------
Increase in investments, at value .............................. (6,982,693)
Increase in interest receivable ................................ (50,290)
Decrease in other assets ....................................... 2,465
Increase in payable for investments purchased .................. 4,607,025
Increase in payable to investment advisor and administrator .... 1,623
Increase in accrued expenses and other liabilities ............. 10,022
------------
Total adjustments .............................................. (2,411,848)
------------
Net cash provided by operating activities ...................... $ 14,399,790
============
See accompanying notes to financial statements
14
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Investment Grade Municipal Income Fund Inc. (the "Fund") was incorporated
in Maryland on August 6, 1992, and is registered with the Securities and
Exchange Commission as a closed-end diversified management investment company.
The Fund's investment objective is to achieve a high level of current income
that is exempt from federal income tax, consistent with the preservation of
capital.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires Fund management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies:
VALUATION OF INVESTMENTS--The Fund calculates its net asset value based on
the current market value, where available, for its portfolio securities. The
Fund normally obtains market values for its securities from independent pricing
sources and broker-dealers. Independent pricing sources may use reported last
sale prices, current market quotations or valuations from computerized "matrix"
systems that derive values based on comparable securities. Securities traded in
the over-the-counter ("OTC") market and listed on The Nasdaq Stock Market, Inc.
("Nasdaq") normally are valued at the last sale price on Nasdaq prior to
valuation. Other OTC securities are valued at the last bid price available prior
to valuation. If a market value is not available from an independent pricing
source for a particular security, that security is valued at fair value as
determined in good faith by or under the direction of the Fund's board of
directors (the "Board"). The amortized cost method of valuation, which
approximates market value, generally is used to value short-term debt
instruments with sixty days or less remaining to maturity, unless the Board
determines that this does not represent fair value.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Interest income is
recorded on an accrual basis. Discounts are accreted and premiums are amortized
as adjustments to interest income and the identified cost of investments.
DIVIDENDS AND DISTRIBUTIONS--The Fund intends to pay monthly dividends to
common shareholders at a level rate that over time will result in the
distribution of all of the Fund's net investment income remaining after the
payment of dividends on any outstanding preferred stock. Dividends and
distributions to common shareholders are recorded on the ex-dividend date.
Dividends to preferred shareholders are accrued daily. Dividends from net
investment income and distributions from net realized capital gains are
determined in accordance with federal income tax regulations which may differ
from accounting principles generally accepted in the United States. These
"book/tax" differences are either considered temporary or permanent in nature.
To the extent these differences are permanent in nature, such amounts are
reclassified within the 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 ADVISOR AND ADMINISTRATOR
The Board has approved an investment advisory and administration contract
("Advisory Contract") with Brinson Advisors, Inc. ("Brinson Advisors," formerly
known as Mitchell Hutchins Asset Management Inc.), an indirect wholly owned
asset
15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
management subsidiary of UBS AG. UBS AG is an internationally diversified
organization with headquarters in Zurich, Switzerland and operations in many
areas of the financial services industry. In accordance with the Advisory
Contract, Brinson Advisors 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 year ended September 30, 2001, Brinson Advisors voluntarily
waived 0.125% of the annual advisory and administration fee, or $307,465 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, 2001 was substantially the same as the cost of securities for financial
statement purposes.
At September 30, 2001, the components of net unrealized appreciation of
investments were as follows:
Gross appreciation (investments having an excess
of value over cost) ................................... $12,155,630
Gross depreciation (investments having an excess
of cost over value) ................................... (233,636)
------------
Net unrealized appreciation of investments .............. $11,921,994
============
For the year ended September 30, 2001, total aggregate purchases and sales
of portfolio securities, excluding short-term securities, were $22,292,927 and
$19,583,790, respectively.
CAPITAL STOCK
COMMON STOCK--There are 199,998,400 shares of $0.001 par value common stock
authorized and 10,356,667 common shares outstanding at September 30, 2001.
AUCTION PREFERRED SHARES--The Fund has issued 800 shares of Auction
Preferred Shares Series A and 800 shares of Auction Preferred Shares Series B,
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 28 days for APS
Series A and three months for APS Series B. Dividend rates ranged from 2.35% to
6.90% for the year ended September 30, 2001.
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.
FEDERAL TAX STATUS
The Fund intends to distribute substantially all of its tax-exempt income
and any taxable income and to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies. Accordingly, no
provision for 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.
16
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout each year is
presented below:
FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Net asset value, beginning of year .............................. $ 15.91 $ 16.09 $ 17.09 $ 16.78 $ 16.11
--------- --------- --------- --------- ---------
Net investment income ........................................... 1.17 1.18 1.17 1.19 1.19
Net realized and unrealized gains (losses) from investments ..... 0.46 (0.13) (1.02) 0.29 0.65
--------- --------- --------- --------- ---------
Net increase from investment operations ......................... 1.63 1.05 0.15 1.48 1.84
--------- --------- --------- --------- ---------
Dividends and distributions:
From net investment income:
Common shareholders ........................................ (0.90) (0.90) (0.90) (0.90) (0.90)
Common share equivalent of dividends
paid to preferred shareholders ........................... (0.23) (0.31) (0.25) (0.27) (0.27)
From net realized gain on investments:
Common shareholders ........................................ (0.19) (0.02) -- -- --
Common share equivalent of distributions
paid to preferred shareholders ........................... (0.07) (0.00)(1) -- -- --
--------- --------- --------- --------- ---------
Total dividends and distributions to shareholders ............... (1.39) (1.23) (1.15) (1.17) (1.17)
--------- --------- --------- --------- ---------
Net asset value, end of year .................................... $ 16.15 $ 15.91 $ 16.09 $ 17.09 $ 16.78
========= ========= ========= ========= =========
Market value, end of year ....................................... $ 15.39 $ 13.75 $ 13.88 $ 15.94 $ 15.06
========= ========= ========= ========= =========
Total investment return (2) ..................................... 20.59% 5.90% (7.68)% 12.21% 17.76%
========= ========= ========= ========= =========
Ratios to average net assets attributable to common shares:
Total expenses, net of waivers from advisor ................ 1.49% 1.52% 1.52% 1.44% 1.44%
Total expenses, before waivers from advisor ................ 1.68% 1.71% 1.71% 1.62% 1.77%
Net investment income before preferred stock dividends ..... 7.30% 7.48% 7.01% 7.03% 7.27%
Preferred stock dividends .................................. 1.42% 1.99% 1.50% 1.62% 1.66%
Net investment income available to common shareholders,
net of waivers from advisor .............................. 5.88% 5.49% 5.51% 5.41% 5.61%
Net investment income available to common shareholders,
before waivers from advisor .............................. 5.69% 5.30% 5.32% 5.23% 5.28%
Supplemental data:
Net assets, end of year (000's) .............................. $ 247,295 $ 244,769 $ 246,618 $ 256,983 $ 253,767
Portfolio turnover rate ...................................... 8% 14% 8% 0% 3%
Asset coverage per share of preferred stock, end of year ..... $ 154,559 $ 152,980 $ 154,136 $ 160,614 $ 158,604
----------
(1) Distribution equal to $0.0042 per share.
(2) Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day of each year reported and a
sale at the current market price on the last day of each year 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 does not reflect brokerage commissions.
17
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Investment Grade Municipal Income Fund Inc.
We have audited the accompanying statement of assets and liabilities of
Investment Grade Municipal Income Fund Inc. (the "Fund"), including the
portfolio of investments as of September 30, 2001, and the related statements of
operations, changes in net assets and cash flows and the financial highlights
for the year then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The statement of changes in net assets for the year ended September 30,
2000 and the financial highlights for each of the four years in the period ended
September 30, 2000, were audited by other auditors whose report dated November
22, 2000, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned at September 30, 2001 by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the 2001 financial statements and financial highlights referred
to above, present fairly, in all material respects, the financial position of
Investment Grade Municipal Income Fund Inc. at September 30, 2001, and the
results of its operations and its cash flows, the changes in its net assets and
the financial highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
November 8, 2001
18
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
TAX INFORMATION (UNAUDITED)
We are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (September
30, 2001) as to the federal tax status of distributions received by stockholders
during such fiscal year. Accordingly, we are advising you that, with the
exception of a long-term capital gain distribution to common shareholders of
$1,919,090, all dividends paid during the fiscal year were federal tax-exempt
interest dividends.
The Fund did not invest in any securities which paid interest subject to
the federal alternative minimum tax for individual taxpayers during its fiscal
year. Therefore, none of the dividends paid by the Fund were subject to such
tax.
Because the Fund's fiscal year is not the calendar year, another
notification will be sent in respect of calendar year 2001. The second
notification, which reflects the amount to be used by calendar year taxpayers on
their federal income tax returns, will be made in conjunction with Form 1099 DIV
and will be mailed in January 2002. Stockholders are advised to consult their
own tax advisors with respect to the tax consequences of their investment in the
Fund.
GENERAL INFORMATION (UNAUDITED)
THE FUND
Investment Grade 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 advisor and administrator is
Brinson Advisors, Inc., an indirect wholly owned asset management subsidiary of
UBS AG, which had over $76.9 billion in assets under management as of October
31, 2001.
SHAREHOLDER INFORMATION
The Fund's NYSE trading symbol is "PPM." Comparative net asset value and
market price information about the Fund is published weekly in THE WALL STREET
JOURNAL, THE NEW YORK TIMES and BARRON'S, as well as in numerous other
publications.
DISTRIBUTION POLICY
The Fund's Board has established a Dividend Reinvestment Plan (the "Plan")
under which all common shareholders whose shares are registered in their own
names, or in the name of UBS PaineWebber or its nominee, will have all dividends
and other distributions on their shares of common stock automatically reinvested
in additional shares of common stock, unless such common shareholders elect to
receive cash. Common shareholders who elect to hold their shares in the name of
another broker or nominee should contact such broker or nominee to determine
whether, or how, they may participate in the Plan. The ability of such
shareholders to participate in the Plan may change if their shares are
transferred into the name of another broker or nominee.
A shareholder may elect not to participate in the Plan or may terminate
participation in the Plan at any time without penalty, and shareholders who have
previously terminated participation in the Plan may rejoin it at any time.
Changes in elections must be made in writing to the Fund's transfer agent and
should include the shareholder's name and address as they appear on that share
certificate or in the transfer agent's records. An election to terminate
participation in the Plan, until such election is changed, will be deemed an
election by a shareholder to take all subsequent distributions in cash. An
election will be effective only for distributions declared and having a record
date at least ten days after the date on which the election is received.
19
INVESTMENT GRADE MUNICIPAL INCOME FUND INC.
GENERAL INFORMATION (UNAUDITED) (CONCLUDED)
Additional shares of common stock acquired under the Plan will be purchased
in the open market, on the NYSE or otherwise, at prices that may be higher or
lower than the net asset value per share of the common stock at the time of the
purchase. The number of shares of common stock purchased with each dividend will
be equal to the result obtained by dividing the amount of the dividend payable
to a particular stockholder by the average price per share (including applicable
brokerage commissions) that the transfer agent was able to obtain in the open
market. The Fund will not issue any new shares of common stock in connection
with the Plan. There currently is no charge to participants for reinvesting
dividends or other distributions. The transfer agent's fees for handling the
reinvestment of distributions will be paid by the Fund. However, each
participant pays a pro rata share of brokerage commissions incurred with respect
to the transfer agent's open market purchases of common stock in connection with
the reinvestment of distributions. The automatic reinvestment of dividends and
other distributions in shares of common stock does not relieve participants of
any income tax that may be payable on such distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan with
respect to any dividend or other distribution if notice of the change is sent to
Plan participants at least 30 days before the record date for such distribution.
The Plan may also be amended or terminated by the transfer agent by at least 30
days' written notice to all plan participants. Additional information regarding
the Plan may be obtained from, and all correspondence concerning the Plan should
be directed to, the transfer agent at PFPC Inc., P.O. Box 8030, Boston,
Massachusetts 02266. For further information regarding the Plan, you may also
contact the transfer agent directly at 1-800-331-1710.
20
DIRECTORS
E. Garrett Bewkes, Jr. George W. Gowen
CHAIRMAN William W. Hewitt, Jr.
Margo N. Alexander Morton Janklow
Richard Q. Armstrong Frederic V. Malek
David J. Beaubien Carl W. Schafer
Richard R. Burt William D. White
Meyer Feldberg
PRINCIPAL OFFICERS
Brian M. Storms Paul H. Schubert
PRESIDENT VICE PRESIDENT AND TREASURER
Amy R. Doberman Elbridge T. Gerry, III
VICE PRESIDENT AND SECRETARY VICE PRESIDENT
INVESTMENT ADVISOR AND
ADMINISTRATOR
Brinson Advisors, Inc.
51 West 52nd Street
New York, New York 10019-6114
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940 THAT FROM TIME TO TIME THE FUND MAY PURCHASE SHARES OF ITS
COMMON STOCK IN THE OPEN MARKET AT MARKET PRICES.
THIS REPORT IS SENT TO THE SHAREHOLDERS OF THE FUND FOR THEIR INFORMATION. IT IS
NOT A PROSPECTUS, CIRCULAR OR REPRESENTATION INTENDED FOR USE IN THE PURCHASE OR
SALE OF SHARES OF THE FUND OR OF ANY SECURITIES MENTIONED IN THIS REPORT.