[LOGO] UBS
Global Asset Management
Investment Grade Municipal Income Fund Inc.
Annual Report
September 30, 2002
Investment Grade Municipal Income Fund Inc.
November 14, 2002
DEAR SHAREHOLDER,
We present you with the annual report for Investment Grade Municipal Income Fund
Inc. for the fiscal year ended September 30, 2002.
AN INTERVIEW WITH PORTFOLIO MANAGER WILLIAM VERONDA
Q: HOW DID THE FUND PERFORM DURING THE PERIOD RELATIVE TO ITS PEERS?
A: For the fiscal year ended September 30, 2002, the Fund's net asset value grew
8.21% and its market price increased 7.96%, underperforming its competitors
as measured by the Lipper General Municipal Debt Fund (Leveraged) Median. The
Lipper Median's net asset value and market price rose 10.58% and 12.75%,
respectively. The Fund's shorter average duration compared to its peers was
the primary contributor to its underperformance versus the benchmark. (For
more on the Fund's performance, refer to "Performance At A Glance" on page
4.)
Q: COULD YOU DESCRIBE THE ECONOMIC ENVIRONMENT DURING THE PERIOD?
A: The reporting period began shortly after the September 11 terrorist attacks.
At that time, prospects for a rapid economic recovery were unlikely. However,
the Federal Reserve Board (the "Fed") moved quickly to stabilize the economy
and add liquidity to the financial system. All told, from October 2001
through December 2001, the Fed cut the Fed Funds rate (the rate U.S. banks
charge each other for overnight loans) three times, down to 1.75%--its lowest
level in several decades. Following a quick renewal in consumer spending,
gross domestic product (GDP) rose a surprising 2.7% during the fourth quarter
of 2001. As increasing signs of economic growth emerged during the first
quarter of 2002, the Fed shifted its bias from one of easing to combat
economic weakness, to one of neutrality. The change in policy appeared
warranted, as the GDP ultimately accelerated to a 5.0% growth rate during
this period. However, the uptick proved short-lived. Ongoing threats of
terrorism, turmoil in the Middle East, anemic corporate spending, waning
consumer confidence in light of the stock market's decline, and corporate
accounting scandals all took their toll. The end result: second quarter 2002
GDP growth was a less-
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:
William Veronda,
UBS Global Asset Management (US) Inc.
COMMENCEMENT:
November 6, 1992
NYSE SYMBOL:
PPM
DIVIDEND PAYMENTS:
Monthly
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UBS Global Asset Management 1
Investment Grade Municipal Income Fund Inc.
than-expected 1.3%. Although the third quarter figure came in at 4.0%, as of
this writing investors were already focusing on fourth quarter GDP, since it
may be an indicator as to whether a sustainable economic recovery is likely.
Q: HOW DID THE BOND MARKET PERFORM DURING THE ONE-YEAR PERIOD?
A: Given the uncertainties regarding the economy, the weak stock market, and
geopolitical concerns, the bond market rallied sharply during the period.
Investors were drawn to the relative safety and strong performance offered by
fixed income securities in general, and the municipal market participated in
this upswing.
Q: WHILE THE FUND GENERATED STRONG ABSOLUTE RETURNS, IT LAGGED ITS BENCHMARK
DURING THE PERIOD. WHAT WAS THE PRIMARY REASON FOR THE FUND'S RELATIVE
UNDERPERFORMANCE?
A: To some extent, our goal of limiting the Fund's capital gains adversely
affected its results during the period. Based on the municipal market's
strong performance in recent years, nearly every security in the portfolio
has risen in price. In an effort to limit locking in capital gains, we've
tended to hold on to our positions. Consequently, many of the bonds in the
Fund's portfolio have "aged" to the point where they have short maturities.
With a shorter duration than the benchmark, the Fund underperformed its peers
in the falling interest rate environment.
Q: HOW ARE YOU CURRENTLY POSITIONING THE FUND'S PORTFOLIO?
A: We are continuing to selectively focus on bonds that have longer durations,
typically those with maturities that more accurately reflect the municipal
market as a whole. This positioning has increased the Fund's flexibility to
purchase what we believe are attractively structured and priced municipal
securities. In particular, we're focusing on bonds with maturities in the 15-
to 20-year range, as we believe these issues offer a "sweet spot" in terms of
their risk/reward characteristics: while we give up a little bit of yield
versus 30-year issues, 15- to 20-year bonds are less volatile than their
longer-term counterparts.
Q: TO ILLUSTRATE YOUR INVESTMENT STRATEGY, PLEASE DESCRIBE SOME HOLDINGS THAT
YOU BOUGHT OR SOLD DURING THIS REPORTING PERIOD?
A: We purchased a block of bonds from the Triborough Bridge and Tunnel Authority
of New York that matures in 2022 and provides an attractive 5% coupon. These
types of issues tend to have a high degree of stability. We sold out of our
position in a small college in California, since it no longer lived up to our
expectations. In particular, we were concerned over its deteriorating credit
quality due to declining enrollments at the college.
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2 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
Q: WERE THERE ANY SECTORS OF THE MARKET THAT YOU FOCUSED ON?
A: The Fund's portfolio tends to be highly diversified. When an overweight of a
particular sector occurs, it is due to the fact that we view it as being
highly attractive.
Q: LASTLY, WHAT IS YOUR SHORT-TERM AND LONG-TERM OUTLOOK FOR THE MARKET?
A: We believe a modest economic expansion will take hold and that a double-dip
recession--while possible--is unlikely. Given a subdued growth rate, we feel
that interest rates will remain in a trading range--a change from the falling
rate environment we've seen in the past few years. As such, we anticipate
continuing our strategy of emphasizing longer-term securities at attractive
points on the yield curve. We will also continue to stress credit quality in
the portfolio to avoid any "contagion" from weakness in the corporate bond
markets.
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 the UBS
Funds,* please contact your financial advisor or visit us at www.ubs.com.
Sincerely,
/s/ Brian M. Storms
---------------------
Brian M. Storms
PRESIDENT
Investment Grade Municipal Income Fund Inc.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
UBS Global Asset Management (US) Inc.
/s/ William Veronda
---------------------
William Veronda
PORTFOLIO MANAGER
Investment Grade Municipal Income Fund Inc.
EXECUTIVE DIRECTOR
UBS Global Asset Management (US) Inc.
This letter is intended to assist shareholders in understanding how the Fund
performed during the fiscal year ended September 30, 2002, and reflects our
views at the time of its writing. Of course, these views may change in response
to changing circumstances. We encourage you to consult your financial advisor
regarding your personal investment program.
* Mutual funds are sold by prospectus only. The prospectus for the fund
contains more complete information regarding risks, charges and expenses, and
should be read carefully before investing.
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UBS Global Asset Management 3
Investment Grade Municipal Income Fund Inc.
PEFORMANCE AT A GLANCE
AVERAGE ANNUAL RETURNS, PERIODS ENDED 9/30/02
NET ASSET VALUE RETURNS FUND LIPPER MEDIAN*
--------------------------------------------------------------------------------
6 Months 7.73% 11.09%
--------------------------------------------------------------------------------
1 Year 8.21 10.58
--------------------------------------------------------------------------------
3 Years 7.19 9.87
--------------------------------------------------------------------------------
5 Years 5.61 6.69
--------------------------------------------------------------------------------
Inception (11/6/92)* 6.93 7.44
--------------------------------------------------------------------------------
MARKET PRICE RETURNS FUND LIPPER MEDIAN*
--------------------------------------------------------------------------------
6 Months 7.25% 12.39%
--------------------------------------------------------------------------------
1 Year 7.96 12.75
--------------------------------------------------------------------------------
3 Years 11.34 11.05
--------------------------------------------------------------------------------
5 Years 7.41 6.27
--------------------------------------------------------------------------------
Inception (11/6/92)* 7.07 7.05
--------------------------------------------------------------------------------
* Inception returns for the Lipper General Municipal Debt Funds (Leveraged)
Median are shown as of nearest month-end of the Fund's inception: October 31,
1992.
Past performance does not predict future performance. The return and
principal value of an investment will fluctuate, so that an investor's
shares, when sold, may be worth more or less than their original cost. NAV
return assumes, for illustration only, that dividends were reinvested at the
net asset value on the ex-dividend dates. NAV and market returns for periods
of one year or less have not been annualized.
Lipper peer group data calculated by Lipper Inc.; used with permission. The
Lipper Median is the return of the fund that places in the middle of the peer
group.
SHARE PRICE, DIVIDEND AND YIELDS AS OF 9/30/02
--------------------------------------------------------------------------------
Market Price $15.60
--------------------------------------------------------------------------------
Net Asset Value (per share applicable
to common shareholders) $16.46
--------------------------------------------------------------------------------
12-month Net Investment Income
Dividend (ended 9/30/02) $0.930
--------------------------------------------------------------------------------
September 2002 Dividend $0.080
--------------------------------------------------------------------------------
Market Yield** 6.15%
--------------------------------------------------------------------------------
NAV Yield** 5.83%
--------------------------------------------------------------------------------
IPO Yield** 6.40%
--------------------------------------------------------------------------------
** Market yield is calculated by multiplying the September dividend by 12 and by
dividing by the month-end market price. NAV yield is calculated by
multiplying the September dividend by 12 and by dividing by the month-end net
asset value. IPO yield is calculated by multiplying the September dividend by
12 and dividing by the intial public offering price. Prices and yields will
vary.
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4 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
PORTFOLIO STATISTICS
CHARACTERISTICS(1) 9/30/02 3/31/02 9/30/01
--------------------------------------------------------------------------------
Net Assets Applicable to
Common Shareholders (mm) 70.5 $162.9 $167.3
--------------------------------------------------------------------------------
Weighted Average Maturity* 13.7 yrs 14.1 yrs 14.1 yrs
--------------------------------------------------------------------------------
Weighted Average Duration* 4.7 yrs 4.8 yrs 3.8 yrs
--------------------------------------------------------------------------------
Weighted Average Coupon* 5.8% 6.0% 6.1%
--------------------------------------------------------------------------------
AMT Paper** 0% 0% 0%
--------------------------------------------------------------------------------
Leverage** 31.3% 32.7% 31.7%
--------------------------------------------------------------------------------
Callable/Maturing within
Five Years* 19.1% 15.6% 22.8%
--------------------------------------------------------------------------------
Callable/Maturing beyond
Five Years* 80.9% 84.4% 77.2%
--------------------------------------------------------------------------------
CREDIT QUALITY*** 9/30/02 3/31/02 9/30/01
--------------------------------------------------------------------------------
AAA/Aaa 66.6% 72.0% 64.5%
--------------------------------------------------------------------------------
AA/Aa 30.2 33.6 36.2
--------------------------------------------------------------------------------
A/A 12.5 13.6 12.2
--------------------------------------------------------------------------------
BBB/Baa 14.4 13.6 12.5
--------------------------------------------------------------------------------
BB/Ba 0.4 0.6 0.0
--------------------------------------------------------------------------------
SP-1/MIG-1 7.1 1.0 1.0
--------------------------------------------------------------------------------
A1/P1 4.3 0.1 3.9
--------------------------------------------------------------------------------
Nonrated 12.4 13.0 13.0
--------------------------------------------------------------------------------
Liabilities in Excess of
Cash and Other Assets (1.0) 1.6 (0.5)
--------------------------------------------------------------------------------
Liquidation Value of
Auction Preferred Shares (46.9) (49.1) (47.8)
--------------------------------------------------------------------------------
TOTAL 100.0% TOTAL 100.0% TOTAL 100.0%
--------------------------------------------------------------------------------
TOP TEN STATES*** 9/30/02 3/31/02 9/30/01
--------------------------------------------------------------------------------
Texas 30.1% Texas 30.2% Texas 32.8%
--------------------------------------------------------------------------------
Illinois 19.5 Indiana 15.1 Illinois 14.0
--------------------------------------------------------------------------------
Indiana 11.3 Illinois 14.0 Indiana 13.7
--------------------------------------------------------------------------------
New York 7.2 New York 9.9 New York 13.2
--------------------------------------------------------------------------------
California 6.1 Washington 6.6 Wisconsin 7.4
--------------------------------------------------------------------------------
North Carolina 5.7 California 5.9 Virginia 6.3
--------------------------------------------------------------------------------
Colorado 5.4 North Carolina 5.6 Pennsylvania 6.1
--------------------------------------------------------------------------------
Connecticut 5.2 Colorado 5.4 California 6.0
--------------------------------------------------------------------------------
Washington 4.8 Connecticut 5.4 Colorado 5.4
--------------------------------------------------------------------------------
Pennsylvania 4.7 Kentucky 4.9 Connecticut 5.4
--------------------------------------------------------------------------------
TOTAL 100.0% TOTAL 103.0% TOTAL 110.3%
--------------------------------------------------------------------------------
TOP FIVE SECTORS*** 9/30/02 3/31/02 9/30/01
--------------------------------------------------------------------------------
Lease 19.7% Water 20.4% Water 24.9%
--------------------------------------------------------------------------------
Hospital 19.5 Lease 20.2 Hospital 20.2
--------------------------------------------------------------------------------
Power 14.2 Power 14.6 Power 19.1
--------------------------------------------------------------------------------
Water 11.7 Hospital 14.6 Lease 16.6
--------------------------------------------------------------------------------
Housing 8.4 Housing 9.4 Housing 9.3
--------------------------------------------------------------------------------
TOTAL 73.5% TOTAL 79.2% TOTAL 90.1%
--------------------------------------------------------------------------------
* Weightings represent percentages of portfolio assets as of the dates
indicated. The Fund's portfolio is actively managed and its composition will
vary over time.
** As a percentage of total assets as of the dates indicated.
*** As a percentage of net assets applicable to common shareholders as of the
dates indicated.
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UBS Global Asset Management 5
Investment Grade Municipal Income Fund Inc.
Portfolio of Investments -- September 30, 2002
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
--------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--135.82%
--------------------------------------------------------------------------------------------
ALABAMA--3.65%
$4,600 Jefferson-County Sewer
Revenue-Series A
(FGIC Insured) Aaa AAA 02/01/27 5.375% $ 4,751,156
--------------------------------------------------------------------------------------------
1,500 Phenix City Industrial
Development Board
Environmental Improvement
Revenue-Series B
(Meadwest Vaco Insured) Baa2 BBB 05/15/30 6.100 1,476,255
--------------------------------------------------------------------------------------------
6,227,411
--------------------------------------------------------------------------------------------
ARIZONA--0.66%
1,000 Scottsdale Municipal Property
Corp. Excise Tax
Revenue (a) Aa1 AA+ 07/01/06 5.500 1,118,210
--------------------------------------------------------------------------------------------
ARKANSAS--1.12%
1,855 Little Rock Capital
Improvement Revenue
Parks & Recreation
Projects-Series A NR NR 01/01/18 5.700 1,915,250
--------------------------------------------------------------------------------------------
CALIFORNIA--6.05%
980 California Educational
Facilities Authority
L.A. College of
Chiropractic Medicine Ba1 NR 11/01/17 5.600 904,795
--------------------------------------------------------------------------------------------
3,000 California Statewide
Communities Development
Authority Irvine Apartment
Communities-Series A-3 Baa2 BBB 05/15/25+ 5.100 3,219,960
--------------------------------------------------------------------------------------------
2,150 Fontana Redevelopment
Agency Tax Allocation
Jurupa Hills Redevelopment
Project A NR BBB + 10/01/17 5.500 2,307,057
--------------------------------------------------------------------------------------------
3,500 Metropolitan Water District
of Southern California
Waterworks-Series A Aaa AAA 03/01/18 5.250 3,877,475
--------------------------------------------------------------------------------------------
10,309,287
--------------------------------------------------------------------------------------------
COLORADO--5.39%
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 7,001,544
--------------------------------------------------------------------------------------------
2,000 University of Colorado
Participation Interests NR A- 12/01/13 6.000 2,180,260
--------------------------------------------------------------------------------------------
9,181,804
--------------------------------------------------------------------------------------------
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6 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
Portfolio of Investments -- (continued)
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
--------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
--------------------------------------------------------------------------------------------
CONNECTICUT--5.19%
$8,590 Connecticut Housing
Finance Authority
Housing Mortgage
Finance Program-Series 05/15/14 to 6.200 to
A & B Aaa AAA 11/15/23 6.750% $ 8,856,212
--------------------------------------------------------------------------------------------
FLORIDA--1.74%
2,540 First Governmental Financing
Commission Revenue-
Series B
(AMBAC Insured) Aaa NR 07/01/15 5.500 2,975,864
--------------------------------------------------------------------------------------------
GEORGIA--0.30%
500 Georgia Municipal Electric
Authority Power
Revenue-Series B A2 A 01/01/16 6.375 512,975
--------------------------------------------------------------------------------------------
ILLINOIS--15.36%
7,380 Chicago Gas Supply
Revenue-People's Gas Aa3 AA- 03/01/15 6.875 7,556,087
--------------------------------------------------------------------------------------------
5,000 Chicago Parking District
Parking Facility Revenue Baa1 A 01/01/14 6.250 5,558,800
--------------------------------------------------------------------------------------------
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 1,950,272
--------------------------------------------------------------------------------------------
250 Metropolitan Pier &
Exposition Authority Aa3 AA- 06/15/27 6.500 258,978
--------------------------------------------------------------------------------------------
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 6,700,456
--------------------------------------------------------------------------------------------
2,875 Metropolitan Pier &
Exposition Authority-
Series A
(MBIA Insured) Aaa AAA 06/15/42 5.250 3,028,439
--------------------------------------------------------------------------------------------
1,000 Naperville Electric Revenue
(Pre-refunded with U.S.
Government Securities
to 05/01/06 @ 100) Aa2 AA 05/01/12 5.700 1,124,080
--------------------------------------------------------------------------------------------
26,177,112
--------------------------------------------------------------------------------------------
INDIANA--11.30%
1,000 Clark Pleasant Community
School Building Corp.
First Mortgage
(AMBAC Insured) Aaa AAA 07/15/17 5.500 1,125,310
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UBS Global Asset Management 7
Investment Grade Municipal Income Fund Inc.
Portfolio of Investments -- September 30, 2002
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
--------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
--------------------------------------------------------------------------------------------
INDIANA--(CONCLUDED)
$6,735 Indiana Transportation
Financing Authority
Airport Facilities Lease 11/01/12 to 5.500 to
Revenue-Series A A1 AA 11/01/17 6.250% $ 7,085,297
--------------------------------------------------------------------------------------------
2,000 Indianapolis Local Public
Improvement Bond
Bank-Transportation
Revenue (Pre-refunded
with U.S. Government
Securities to
07/01/03 @ 102) Aa2 AA- 07/01/10 6.000 2,107,080
--------------------------------------------------------------------------------------------
3,400 Marion County Convention
& Recreational Facilities
Authority Excise Tax
Revenue-Series A
(MBIA Insured) Aaa AAA 06/01/17 5.500 3,794,060
--------------------------------------------------------------------------------------------
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 1,137,690
--------------------------------------------------------------------------------------------
3,780 Wayne Township Marion
County School Building 01/15/15 to
Corp.-First Mortgage NR A+ 07/15/15 5.250 4,009,597
--------------------------------------------------------------------------------------------
19,259,034
--------------------------------------------------------------------------------------------
KENTUCKY--4.64%
7,750 Boone County Pollution
Control Revenue Dayton
Power & Light Co. A2 BBB 11/15/22 6.500 7,904,690
--------------------------------------------------------------------------------------------
MASSACHUSETTS--2.47%
1,450 Massachusetts State General
Obligation-Series D
(MBIA Insured) Aaa AAA 08/01/20 5.375 1,594,638
--------------------------------------------------------------------------------------------
2,250 Massachusetts State Health
& Educational Facilities
Authority Revenue
Massachusetts Institute
of Technology-Series K Aaa AAA 07/01/32 5.500 2,618,032
--------------------------------------------------------------------------------------------
4,212,670
--------------------------------------------------------------------------------------------
MICHIGAN--1.18%
2,000 Delta County Economic
Development Corp.
Environmental Improvement
Revenue-Series A Baa2 BBB 04/15/27 6.250 2,004,340
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
8 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
Portfolio of Investments -- (continued)
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
--------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
--------------------------------------------------------------------------------------------
NEVADA--4.05%
$6,750 Clark County Pollution
Control Revenue Nevada
Power Co. Project-Series B
(FGIC Insured) Aaa AAA 06/01/19 6.600% $ 6,909,840
--------------------------------------------------------------------------------------------
NEW JERSEY--1.37%
2,000 New Jersey Transportation
Trust Fund Authority
Transportation System-
Series A Aa3 AA 06/15/11 5.500 2,328,920
--------------------------------------------------------------------------------------------
NEW YORK--7.21%
5,500 New York City Transitional
Financing Authority
Revenue-Future Tax
Secured-Series B Aa2 AA+ 11/15/23 4.750 5,545,210
--------------------------------------------------------------------------------------------
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 1,532,250
--------------------------------------------------------------------------------------------
5,000 Triborough Bridge & Tunnel
Authority New York
Revenue Refunding-
Series B Aa3 AA- 11/15/22 5.000 5,209,500
--------------------------------------------------------------------------------------------
12,286,960
--------------------------------------------------------------------------------------------
NORTH CAROLINA--5.72%
3,155 Charlotte Water & Sewer
System Revenue-Series AAa1 AAA 07/01/15 5.500 3,731,545
--------------------------------------------------------------------------------------------
2,700 North Carolina Eastern
Municipal Power Agency-
Series A (Escrowed to
Maturity) Baa3 BBB 01/01/21 6.400 3,389,634
--------------------------------------------------------------------------------------------
1,630 North Carolina Municipal
Power Agency-Catawba
Electric Revenue Baa1 BBB+ 01/01/17 6.250 1,676,520
--------------------------------------------------------------------------------------------
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 6.250 949,357
--------------------------------------------------------------------------------------------
9,747,056
--------------------------------------------------------------------------------------------
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UBS Global Asset Management 9
Investment Grade Municipal Income Fund Inc.
Portfolio of Investments -- September 30, 2002
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
--------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
--------------------------------------------------------------------------------------------
OHIO--1.38%
$2,000 Ohio State Water
Development Authority
Revenue-Fresh Water-
Series B 06/01/16 to
(FSA Insured) Aaa AAA 12/01/17 5.500% $ 2,347,260
--------------------------------------------------------------------------------------------
PENNSYLVANIA--4.67%
5,000 Northumberland County
Authority-Guaranteed
Lease Revenue-Mountain
View Manor Project NR NR 10/01/20 7.000 5,018,150
--------------------------------------------------------------------------------------------
2,680 Philadelphia School District-
Series A
(MBIA Insured) Aaa AAA 04/01/15 5.250 2,949,018
--------------------------------------------------------------------------------------------
7,967,168
--------------------------------------------------------------------------------------------
PUERTO RICO--1.63%
2,425 Puerto Rico Public Buildings
Authority Revenue-
Guaranteed Government
Facilities-Series D Baa1 A 07/01/13 5.375 2,780,529
--------------------------------------------------------------------------------------------
RHODE ISLAND--3.70%
6,175 Rhode Island Housing &
Mortgage Finance Corp.
Homeownership
Opportunity-Series 10-A Aa2 AA+ 04/01/27 6.500 6,305,169
--------------------------------------------------------------------------------------------
SOUTH CAROLINA--3.77%
6,290 Richland County Pollution
Control Revenue-Union
Camp Corp.
Project-Series C Baa2 BBB 11/01/20 6.550 6,422,027
--------------------------------------------------------------------------------------------
SOUTH DAKOTA--3.16%
3,860 Lower Brule Sioux Tribe++ NR NR 08/15/15 6.000 3,815,768
--------------------------------------------------------------------------------------------
1,568 Standing Rock South Dakota
New Public Housing++ NR NR 08/07/13 6.000 1,566,305
--------------------------------------------------------------------------------------------
5,382,073
--------------------------------------------------------------------------------------------
TENNESSEE--1.55%
2,500 Memphis-Shelby County
Airport Authority-Special
Facilities Revenue Federal
Express Corp. Baa2 BBB 09/01/09 5.000 2,643,525
--------------------------------------------------------------------------------------------
TEXAS--29.53%
2,475 Alvin Independent School
District School House-
Series A Aaa AAA 02/15/17 5.375 2,746,928
--------------------------------------------------------------------------------------------
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10 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
Portfolio of Investments -- (continued)
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
--------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONTINUED)
--------------------------------------------------------------------------------------------
TEXAS--(CONCLUDED)
$4,000 Coastal Bend Health
Facilities Development-
Incarnate Word Health
System (Escrowed to
Maturity)
(AMBAC Insured) Aaa AAA 01/01/17 6.300% $ 4,122,120
--------------------------------------------------------------------------------------------
10,000 Colorado River Texas
Municipal Water District
Water Revenue
(AMBAC Insured) Aaa AAA 01/01/21 5.150 10,015,500
--------------------------------------------------------------------------------------------
1,335 Eagle Mountain & Saginaw
Independent School
District Unlimited Tax-
School Building Aaa AAA 08/15/14 5.375 1,511,847
--------------------------------------------------------------------------------------------
2,825 Fort Worth Water &
Sewer Revenue Aa2 AA 02/15/16 5.625 3,237,902
--------------------------------------------------------------------------------------------
7,530 Harris County Texas Lease++ NR NR 05/01/20 6.750 7,547,707
--------------------------------------------------------------------------------------------
915 Harris County Toll Road Aaa AAA 08/15/17 6.500 936,777
--------------------------------------------------------------------------------------------
3,007 Houston Community
College System Certificates
of Participation++ NR NR 06/15/25 7.875 3,070,214
--------------------------------------------------------------------------------------------
2,000 Houston Refunding & Public
Improvement-Series A Aa3 AA- 03/01/15 5.250 2,198,400
--------------------------------------------------------------------------------------------
3,000 Houston Water & Sewer
System Revenue-Junior
Lien-Series C
(FGIC Insured) Aaa AAA 12/01/22 5.250 3,136,290
--------------------------------------------------------------------------------------------
1,000 Houston Water & Sewer
System Revenue-Prior
Lien-Series B (Pre-refunded
with U.S. Government
Securities to
12/01/02 @ 102) Aaa A+ 12/01/14 6.375 1,027,990
--------------------------------------------------------------------------------------------
2,350 Port Corpus Christi Industrial
Development Corp.
Revenue-Valero Energy
Corp.-Series C Baa2 BBB 04/01/18 5.400 2,308,875
--------------------------------------------------------------------------------------------
3,200 San Antonio Electric &
Gas-Series A Aa1 AA 02/01/21 4.500 3,172,224
--------------------------------------------------------------------------------------------
5,000 Texas Health Facilities
Development Corp.-
All Saints Episcopal
Hospital-Series B
(Pre-refunded with
U.S. Government
securities to
8/15/03 @ 102)
(MBIA Insured) Aaa AAA 08/15/22 6.250 5,306,250
--------------------------------------------------------------------------------------------
50,339,024
--------------------------------------------------------------------------------------------
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UBS Global Asset Management 11
Investment Grade Municipal Income Fund Inc.
Portfolio of Investments -- September 30, 2002
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
--------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL BONDS--(CONCLUDED)
--------------------------------------------------------------------------------------------
VIRGINIA--4.20%
$1,050 Chesapeake Public
Improvement Aa2 AA 12/01/14 5.500% $ 1,214,346
--------------------------------------------------------------------------------------------
5,815 Virginia Transportation
Board-Transportation
Contract Revenue-
Route 28 Project Aa1 AA+ 04/01/18 6.500 5,953,397
--------------------------------------------------------------------------------------------
7,167,743
--------------------------------------------------------------------------------------------
WASHINGTON--4.83%
3,035 Metropolitan Park District
Tacoma 12/01/14 to
(AMBAC Insured) Aaa AAA 12/01/16 6.000 3,593,402
--------------------------------------------------------------------------------------------
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 4,644,630
--------------------------------------------------------------------------------------------
8,238,032
--------------------------------------------------------------------------------------------
Total Long-Term Municipal Bonds (cost--$218,705,475) 231,520,185
--------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL NOTES--12.14%
--------------------------------------------------------------------------------------------
ALASKA--2.17%
3,700 Valdez Alaska Marine
Terminal Revenue-Exxon
Pipeline Co. Project P1 A1+ 10/01/02 2.000* 3,700,000
--------------------------------------------------------------------------------------------
FLORIDA--0.18%
300 Jacksonville Florida Electric
Authority Revenue-Electric
Systems-Series B VMIG-1 A1+ 10/01/02 2.050* 300,000
--------------------------------------------------------------------------------------------
GEORGIA--4.16%
7,100 Municipal Electric Authority
of Georgia VMIG-1 A1+ 10/01/02 1.750* 7,100,000
--------------------------------------------------------------------------------------------
ILLINOIS--4.11%
1,300 Chicago O'Hare International
Airport Revenue American
Airlines-Series D P1 NR 10/01/02 2.100* 1,300,000
--------------------------------------------------------------------------------------------
2,000 Illinois Development Finance
Authority Revenue YMCA
Metropolitan Chicago
Project NR A1+ 10/01/02 2.000* 2,000,000
--------------------------------------------------------------------------------------------
3,700 Illinois Health Facilities
Authority Revenue-
University of Chicago
Hospitals Project-Series C
(MBIA Insured) VMIG-1 A1+ 10/01/02 2.150* 3,700,000
--------------------------------------------------------------------------------------------
7,000,000
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
12 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
Portfolio of Investments -- (continued)
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
--------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL NOTES--(CONTINUED)
--------------------------------------------------------------------------------------------
MISSOURI--0.93%
$300 Kansas City Industrial
Development Authority
Hospital Revenue
(MBIA Insured) VMIG-1 A1+ 10/01/0 2.100%* $ 300,000
--------------------------------------------------------------------------------------------
590 Kansas City Industrial
Development Authority
Hospital Revenue-
Research Health Services
Systems
(MBIA Insured) VMIG-1 A1+ 10/01/02 2.100* 590,000
--------------------------------------------------------------------------------------------
700 Missouri Development
Finance Board Cultural
Facilities Revenue-Nelson
Gallery Funding-Series B
(MBIA Insured) VMIG-1 A1+ 10/01/02 2.000* 700,000
--------------------------------------------------------------------------------------------
1,590,000
--------------------------------------------------------------------------------------------
OHIO--0.06%
100 Ohio State Water
Development Authority
Pollution Control
Facilities Revenue
Refunding-Toledo
Edison Co. Project-Series A VMIG-1 A1+ 10/01/02 2.100* 100,000
--------------------------------------------------------------------------------------------
TEXAS--0.53%
100 Angelina & Neches River
Authority Industrial
Development Corp.-
Westvaco-Teec, Inc.-
Series 1984-D P1 NR 10/01/02 2.100* 100,000
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UBS Global Asset Management 13
Investment Grade Municipal Income Fund Inc.
Portfolio of Investments -- September 30, 2002
PRINCIPAL MOODY'S S&P
AMOUNT RATING RATING MATURITY INTEREST
(000) (UNAUDITED) (UNAUDITED) DATES RATES VALUE
--------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL NOTES--(CONCLUDED)
--------------------------------------------------------------------------------------------
TEXAS--(CONCLUDED)
$800 Harris County Industrial
Development Corp.
Pollution Control Revenue Aaa A1+ 10/01/02 2.000%* $800,000
--------------------------------------------------------------------------------------------
900,000
--------------------------------------------------------------------------------------------
Total Short-Term Municipal Notes (cost--$20,690,000) 20,690,000
--------------------------------------------------------------------------------------------
Total Investments (cost--$239,395,475)--147.96% 252,210,185
--------------------------------------------------------------------------------------------
Liabilities in excess of other assets--(1.03)% (1,756,026)
--------------------------------------------------------------------------------------------
Liquidation value of Auction Preferred Shares--(46.93%) (80,000,000)
--------------------------------------------------------------------------------------------
Net Assets applicable to common shareholders--100.00% $170,454,159
--------------------------------------------------------------------------------------------
(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 9.39% of net assets.
* 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, 2002.
AMBAC -- American Municipal Bond Assurance Corporation
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Authority
FSA -- Financial Security Assurance Incorporated
MBIA -- Municipal Bond Investors Assurance
See accompanying notes to financial statements
--------------------------------------------------------------------------------
14 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
Statement of Assets and Liabilities-- September 30, 2002
ASSETS:
Investments in securities, at value (cost--$239,395,475) $252,210,185
--------------------------------------------------------------------------------
Cash 71,039
--------------------------------------------------------------------------------
Interest receivable 3,656,806
--------------------------------------------------------------------------------
Other assets 8,591
--------------------------------------------------------------------------------
Total assets 255,946,621
--------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 5,165,660
--------------------------------------------------------------------------------
Payable to investment advisor and administrator 158,852
--------------------------------------------------------------------------------
Dividends payable to preferred shareholders 69,243
--------------------------------------------------------------------------------
Accrued expenses and other liabilities 98,707
--------------------------------------------------------------------------------
Total liabilities 5,492,462
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
Net assets applicable to common shareholders $170,454,159
--------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
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 1,868,828
--------------------------------------------------------------------------------
Accumulated net realized gain from investment transactions 2,096,474
--------------------------------------------------------------------------------
Net unrealized appreciation of investments 12,814,710
--------------------------------------------------------------------------------
Net assets applicable to common shareholders $170,454,159
--------------------------------------------------------------------------------
Net asset value per common share ($170,454,159 applicable to
10,356,667 common shares outstanding) $16.46
--------------------------------------------------------------------------------
See accompanying notes to financial statements
--------------------------------------------------------------------------------
UBS Global Asset Management 15
Investment Grade Municipal Income Fund Inc.
Statement of Operations
For the
Year Ended
September 30,
2002
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $13,915,660
--------------------------------------------------------------------------------
EXPENSES:
Investment advisory and administration 2,215,616
--------------------------------------------------------------------------------
Auction Preferred Shares expenses 230,459
--------------------------------------------------------------------------------
Custody and accounting 147,708
--------------------------------------------------------------------------------
Professional fees 58,202
--------------------------------------------------------------------------------
Reports and notices to shareholders 47,246
--------------------------------------------------------------------------------
Transfer agency fees 21,950
--------------------------------------------------------------------------------
Directors' fees 6,273
--------------------------------------------------------------------------------
Other expenses 42,222
--------------------------------------------------------------------------------
2,769,676
--------------------------------------------------------------------------------
Less: Fee waivers from investment advisor (307,723)
--------------------------------------------------------------------------------
Net expenses 2,461,953
--------------------------------------------------------------------------------
Net investment income 11,453,707
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES:
Net realized gain from investment transactions 2,096,508
--------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation of investments 892,716
--------------------------------------------------------------------------------
Net realized and unrealized gain from investment activities 2,989,224
--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
Net investment income (1,215,439)
--------------------------------------------------------------------------------
Net realized gain on investments (85,072)
--------------------------------------------------------------------------------
Total dividends and distributions to preferred shareholders (1,300,511)
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS $13,142,420
--------------------------------------------------------------------------------
See accompanying notes to financial statements
--------------------------------------------------------------------------------
16 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
Statement of Changes in Net Assets Applicable to
Common Shareholders
For the Years Ended
September 30,
--------------------------------------------------------------------------------
2002 2001
--------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $11,453,707 $12,125,828
--------------------------------------------------------------------------------
Net realized gains from investment transactions 2,096,508 435,821
--------------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation
of investments 892,716 4,249,989
--------------------------------------------------------------------------------
Dividends and distributions to preferred shareholders (1,300,511) (3,045,659)
--------------------------------------------------------------------------------
Net increase in net assets applicable to common
shareholders resulting from operations 13,142,420 13,765,979
--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (9,631,700) (9,321,000)
--------------------------------------------------------------------------------
Net realized gains on investments (351,091) 1,919,090)
--------------------------------------------------------------------------------
Total dividends and distributions to common
shareholders (9,982,791) (11,240,090)
--------------------------------------------------------------------------------
Net increase in net assets applicable to common
shareholders 3,159,629 2,525,889
--------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of year 167,294,530 164,768,641
--------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $1,868,828 and $1,262,867, respectively) $170,454,159 $167,294,530
--------------------------------------------------------------------------------
See accompanying notes to financial statements
--------------------------------------------------------------------------------
UBS Global Asset Management 17
Investment Grade Municipal Income Fund Inc.
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 under the Investment Company Act of 1940, as amended, 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. 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 shares. The dividend rate on the common stock is
adjusted as necessary to reflect the performance of the Fund. Dividends and
distributions to common shareholders are recorded on the ex-dividend date.
Dividends to preferred shareholders are accrued daily. The amount of dividends
from net investment income and distributions from net realized capital gains is
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.
--------------------------------------------------------------------------------
18 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
Notes to Financial Statements
CHANGE IN ACCOUNTING PRINCIPLE
Effective as of October 1, 2000, the Fund adopted the classification requirement
of EITF D-98, CLASSIFICATION AND MEASUREMENT OF REDEEMABLE SECURITIES. EITF D-98
requires that preferred shares for which redemption is outside of the Fund's
control should be presented outside of net assets applicable to common shares in
the statement of assets and liabilities. The redemption of the Fund's auction
preferred shares is outside of the control of the Fund because they are
redeemable upon the occurrence of an event that is not solely within the control
of the Fund. In adopting EITF D-98, the Fund's net assets as of October 1, 2000
in the statement of changes in net assets applicable to common shareholders is
restated by excluding auction preferred shares valued at $80,000,000 at that
date. The adoption also resulted in dividends on auction preferred shares being
reclassified from distributions on the statement of changes in net assets
applicable to common shareholders to a separate line item within the statement
of operations. This resulted in a decrease of $3,045,659 in the net increase in
net assets applicable to common shareholders resulting from operations for the
year ended September 30, 2001. As part of the adoption, per share distributions
of dividends on auction preferred shares, if any, were reclassified from
distributions to amounts from investment operations for each period presented in
the financial highlights.
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 UBS Global Asset Management (US) Inc. ("UBS Global
AM"), under which UBS Global AM serves as investment advisor and administrator
of the Fund. UBS Global AM is an indirect wholly owned asset management
subsidiary of UBS AG, 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, the Fund
pays UBS Global AM an investment advisory and administration fee, which is
accrued 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, 2002, UBS Global AM
voluntarily waived $307,723 in investment advisory and administration fees from
the Fund.
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, 2002.
--------------------------------------------------------------------------------
UBS Global Asset Management 19
Investment Grade Municipal Income Fund Inc.
Notes to Financial Statements
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 90 days for APS Series B. Dividend rates ranged from 1.249% to
2.300% for the year ended September 30, 2002. 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
For federal income tax purposes, the components of net unrealized appreciation
of investments at September 30, 2002 were as follows:
Gross appreciation (investments having an excess of value
over cost) .................................................... $13,049,042
Gross depreciation (investments having an excess of cost
over value) ................................................... (234,332)
-----------
Net unrealized appreciation of investments ...................... $12,814,710
===========
For the year ended September 30, 2002, total aggregate purchases and sales of
portfolio securities, excluding short-term securities, were $49,724,763 and
$61,189,897, respectively. 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, net realized capital gains and certain other amounts, if any,
the Fund intends not to be subject to a federal excise tax.
The tax character of distributions paid during the fiscal years ended September
30, 2002 and September 30, 2001 were as follows:
Distributions paid from: 2002 2001
----- -----
Tax-exempt income ............................... $10,887,019 $11,870,353
Net long-term capital gains ..................... 436,163 2,501,294
----------- -----------
Total Distributions ............................. $11,323,182 $14,371,647
=========== ===========
--------------------------------------------------------------------------------
20 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
Notes to Financial Statements
FEDERAL TAX STATUS (CONCLUDED)
Total distributions paid differ from the statement of changes in net assets
applicable to common shareholders because for tax purposes dividends are
recognized when actually paid.
At September 30, 2002, the components of accumulated earnings on a tax basis
were as follows:
Undistributed tax-exempt income .................. $1,938,071
Undistributed long-term capital gains ............ 2,096,474
-----------
Accumulated earnings ............................. 4,034,545
Net unrealized appreciation of investments ....... 12,814,710
-----------
Total accumulated earnings ....................... $16,849,255
===========
To reflect reclassifications arising from permanent "book/tax" differences for
the year ended September 30, 2002, the Fund's undistributed net investment
income was decreased by $607 and accumulated net realized gains were increased
by $607.
--------------------------------------------------------------------------------
UBS Global Asset Management 21
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,
------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 16.15 $ 15.91 $ 16.09 $ 17.09 $ 16.78
------------------------------------------------------------------------------------------------------------------
Net investment income 1.11 1.17 1.18 1.17 1.19
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains
(losses) from investment activities 0.29 0.46 (0.13) (1.02) 0.29
------------------------------------------------------------------------------------------------------------------
Common share equivalent of
dividends and distributions
paid to preferred shareholders from:
Net investment income (0.12) (0.23) (0.31) (0.25) (0.27)
------------------------------------------------------------------------------------------------------------------
Net realized gains on investments (0.01) (0.07) (0.00)(1) -- --
------------------------------------------------------------------------------------------------------------------
Total dividends and distributions paid
to preferred shareholders (0.13) (0.30) (0.31) (0.25) (0.27)
------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
from investment operations 1.27 1.33 0.74 (0.10) 1.21
------------------------------------------------------------------------------------------------------------------
Dividends and distributions paid
to common shareholders from:
Net investment income (0.93) (0.90) (0.90) (0.90) (0.90)
------------------------------------------------------------------------------------------------------------------
Net realized gains on investments (0.03) (0.19) (0.02) -- --
------------------------------------------------------------------------------------------------------------------
Total dividends and distributions
to common shareholders (0.96) (1.09) (0.92) (0.90) (0.90)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 16.46 $ 16.15 $ 15.91 $ 16.09 $ 17.09
------------------------------------------------------------------------------------------------------------------
MARKET VALUE, END OF YEAR $ 15.60 $ 15.39 $ 13.75 $ 13.88 $ 15.94
------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN(2) 7.96% 20.59% 5.90% (7.68)% 12.21%
------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS
ATTRIBUTABLE TO COMMON SHARES:
------------------------------------------------------------------------------------------------------------------
Total expenses, net of
waivers from advisor 1.48% 1.49% 1.52% 1.52% 1.44%
------------------------------------------------------------------------------------------------------------------
Total expenses, before
waivers from advisor 1.67% 1.68% 1.71% 1.71% 1.62%
------------------------------------------------------------------------------------------------------------------
Net investment income
before preferred stock dividends 6.89% 7.30% 7.48% 7.01% 7.03%
------------------------------------------------------------------------------------------------------------------
Preferred stock dividends from
net investment income 0.73% 1.42% 1.99% 1.50% 1.62%
------------------------------------------------------------------------------------------------------------------
Net investment income available
to common shareholders, net
of waivers from advisor 6.16% 5.88% 5.49% 5.51% 5.41%
------------------------------------------------------------------------------------------------------------------
Net investment income available
to common shareholders,
before waivers from advisor 5.97% 5.69% 5.30% 5.32% 5.23%
------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA:
------------------------------------------------------------------------------------------------------------------
Net assets applicable to common
shareholders, end of year (000's) $ 170,454 $ 167,295 $ 164,769 $ 166,618 $ 176,983
------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 21% 8% 14% 8% 0%
------------------------------------------------------------------------------------------------------------------
Asset coverage per share of
auction preferred stock,
end of year $ 156,534 $ 154,559 $ 152,980 $ 154,136 $ 160,614
------------------------------------------------------------------------------------------------------------------
(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
shareholders at prices obtained under the Fund's Dividend Reinvestment
Plan. Total investment return does not reflect brokerage commissions.
--------------------------------------------------------------------------------
22 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
Report of Ernst & Young LLP, 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, 2002, the related statement of
operations for the year then ended, and the statement of changes in net assets
applicable to common shareholders and the financial highlights for each of the
two years in the period 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 audits. The financial highlights for each of the three 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 financial
highlights.
We conducted our audits 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, 2002 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
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above and audited by us, present fairly, in all material respects, the financial
position of Investment Grade Municipal Income Fund Inc. at September 30, 2002,
and the results of its operations for the year then ended and the changes in its
net assets applicable to common shareholders and the financial highlights for
each of the two years in the period then ended, in conformity with accounting
principles generally accepted in the United States. As discussed in the Notes to
Financial Statements, effective as of October 1, 2000 the Fund changed its
method of classifying its auction preferred shares and its dividends to
preferred shareholders on such auction preferred shares.
/s/ Ernst & Young LLP
New York, New York
October 31, 2002
--------------------------------------------------------------------------------
UBS Global Asset Management 23
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, 2002) 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 net long-term capital gain distribution of $436,163, net
investment income distributions of $10,887,019 paid during the fiscal year
qualified as 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 2002. 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 2003. 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 YorkStock
Exchange ("NYSE").The Fund's investment objective is to achieve a high level of
current income that is exempt from federal income tax, consistent with the
preservation of capital. The Fund's investment advisor and administrator is UBS
Global Asset Management (US) Inc. ("UBS Global AM"), an indirect wholly owned
asset management subsidiary of UBS AG, which has over $71.4 billion in assets
under management as of October 31, 2002.
Effective May 20, 2002, William Veronda assumed primary responsibility for the
day-to-day management of the Fund. Mr. Veronda is an Executive Director and
portfolio manager of UBS Global AM. Mr. Veronda joined UBS Global AM in
September 1995 and has led its municipal research group since that date. Mr.
Veronda previously served as the portfolio manager for PaineWebber Municipal
High Income Fund from September 1995 until March 2001.
INVESTMENT POLICY CHANGES
The Fund's board approved modifications to the Fund's investment policies as a
result of a new rule promulgated by the Securities and Exchange Commission. This
rule generally requires a fund with a name suggesting that it focuses on a
particular type of
--------------------------------------------------------------------------------
24 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
GENERAL INFORMATION (UNAUDITED) (CONTINUED)
INVESTMENT POLICY CHANGES (CONTINUED)
investment to invest at least 80% of its net assets (plus the amount of any
borrowing for investment purposes) in the type of investment suggested by its
name. The investment policy changes became effective on April 8, 2002. These
changes are not expected to affect materially portfolio management.
The new 80% policy has been adopted as a "fundamental" investment policy; the
Fund may not deviate from this 80% policy without shareholder approval. Many of
the Fund's other investment policies are non-fundamental policies and may be
changed by its board without shareholder approval. The Fund will interpret these
new policies as if the following phrase appeared immediately after the words
"net assets": "(plus the amount of any borrowing for investment purposes)." If
subsequent to an investment, the Fund's 80% policy is no longer met (E.G., bonds
are called resulting in a large influx of cash), then under normal
circumstances, the Fund's future investments would be made in a manner that
would bring the Fund's investments back in line with the 80% threshold.
In order to place these changes in context, reproduced below are prior policies
that were impacted by this change as well as new policies which replace the
prior policies:
PRIOR POLICIES IMPACTED BY CHANGE:
The Fund normally invests substantially all of its assets in a
diversified portfolio of long-term tax-exempt Municipal Obligations
that have been rated investment grade or are unrated but have been
determined to be of comparable quality by UBS Global AM. Municipal
Obligations rated investment grade are those that, at the time of
investment, are rated within the four highest grades by Moody's (Baa or
higher) or S&P (BBB or higher) or have an equivalent rating from
another nationally recognized statistical rating organization. The Fund
may invest up to 20% of its total assets in Municipal Obligations that
are unrated but that, at the time of investment, have been determined
by UBS Global AM to be of comparable quality to those that are rated
investment grade. Under normal circumstances, the Fund invests at least
65% of its total assets in income-producing securities.
--------------------------------------------------------------------------------
UBS Global Asset Management 25
Investment Grade Municipal Income Fund Inc.
GENERAL INFORMATION (UNAUDITED) (CONTINUED)
INVESTMENT POLICY CHANGES (CONCLUDED)
REVISED POLICIES:
The Fund normally invests substantially all of its assets in a
diversified portfolio of long-term Municipal Obligations. Under normal
circumstances, the Fund invests at least 80% of its net assets in
investment grade Municipal Obligations, the income from which is exempt
from regular federal income tax. Municipal Obligations rated investment
grade are those that, at the time of investment, are rated within the
four highest grades by Moody's (Baa or higher) or S&P (BBB or higher)
or have an equivalent rating from another nationally recognized
statistical rating organization. The Fund may invest up to 20% of its
net assets in Municipal Obligations that are unrated but that, at the
time of investment, have been determined by UBS Global AM to be of
comparable quality to those that are rated investment grade.
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 WALLSTREET JOURNAL,
THE NEW YORK TIMES and BARRON'S, as well as in numerous other publications.
DIVIDEND REINVESTMENT PLAN
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 Inc. 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 common shareholder may elect not to participate in the Plan or may terminate
participation in the Plan at any time without penalty, and common 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 common 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.
--------------------------------------------------------------------------------
26 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
GENERAL INFORMATION (UNAUDITED) (CONCLUDED)
DIVIDEND REINVESTMENT PLAN (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 shareholder 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 also may 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 43027, Providence,
Rhode Island 02940-3027. For further information regarding the Plan, you may
also contact the transfer agent directly at 1-800-331-1710.
--------------------------------------------------------------------------------
UBS Global Asset Management 27
Investment Grade Municipal Income Fund Inc.
Supplemental Information (unaudited)
BOARD OF DIRECTORS & OFFICERS
The Fund is governed by a Board of Directors which oversees the Fund's
operations. Each Director serves until the next annual meeting of shareholders
or until his or her successor is elected and qualified. Officers are appointed
by the Directors and serve at the pleasure of the Board. The table below shows,
for each Director and Officer, his or her name, address and age, the position
held with the Fund, the length of time served as a Director and Officer of the
Fund, the Director's or Officer's principal occupations during the last five
years, the number of funds in the UBS fund complex overseen by the Director or
for which a person served as an Officer, and other directorships held by the
Director.
The Fund's Statement of Additional Information contains additional information
about the Directors and Officers and is available, without charge, upon request,
by calling 1-800-647 1568.
INTERESTED DIRECTORS
Term of
Office+ and
Position(s) Length of
Name, Address, Held with Time Principal Occupation(s)
and Age Fund Served During Past 5 Years
--------------------------------------------------------------------------------
Margo N. Alexander*++; Director Since 1996 Mrs. Alexander is an
55 executive vice president
of UBS PaineWebber
(since March 1984). She
was chief executive
officer of UBS Global AM
from January 1995 to
October 2000, a director
(from January 1995 to
September 2001) and
chairman (from March
1999 to September 2001).
E. Garrett Bewkes, Jr.**++; Director Since 1996 Mr. Bewkes serves as a
75 and consultant to UBS
Chairman PaineWebber (since May
of the 1999). Prior to November
Board of 2000, he was a Trustee
Directors of Paine Webber Group
Inc. ("PW Group,"
formerly the holding
company of UBS
PaineWebber and UBS
Global AM) and prior to
1996, he was a
consultant to PW Group.
Prior to 1988, he was
chairman of the board,
president and chief
executive officer of
American Bakeries
Company.
--------------------------------------------------------------------------------
28 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
Supplemental Information (unaudited)
Number of
Portfolios in Fund Complex Other Directorships
Overseen by Director Held by Director
--------------------------------------------------------------------------------
Mrs. Alexander is a director or None
trustee of 22 investment companies
(consisting of 43 portfolios) for
which UBS Global AM or one of its
affiliates serves as investment
advisor, sub-advisor or manager.
Mr. Bewkes is a director or trustee Mr. Bewkes is also a director of
of 35 investment companies Interstate Bakeries Corporation.
(consisting of 56 portfolios) for
which UBS Global AM or one of its
affiliates serves as investment
advisor, sub-advisor or manager.
--------------------------------------------------------------------------------
UBS Global Asset Management 29
Investment Grade Municipal Income Fund Inc.
Supplemental Information (unaudited)
INDEPENDENT DIRECTORS
Term of
Office+ and
Position(s) Length of
Name, Address, Held with Time Principal Occupation(s)
and Age Fund Served During Past 5 Years
--------------------------------------------------------------------------------
Richard Q. Armstrong; 67 Director Since 1995 Mr. Armstrong is
R.Q.A. Enterprises chairman and principal
One Old Church Road - of R.Q.A. Enterprises
Unit # 6 (management consulting
Greenwich, CT 06830 firm) (since April 1991
and principal occupation
since March 1995). Mr.
Armstrong was chairman
of the board, chief
executive officer and
co-owner of Adirondack
Beverages (producer and
distributor of soft
drinks and
sparkling/still waters)
(October 1993-March
1995). He was a partner
of The New England
Consulting Group
(management consulting
firm) (December
1992-September 1993). He
was managing director of
LVMH U.S. Corporation
(U.S. subsidiary of the
French luxury goods
conglomerate, Louis
Vuitton Moet Hennessey
Corporation) (1987-1991)
and chairman of its wine
and spirits subsidiary,
Schieffelin & Somerset
Company (1987-1991).
David J. Beaubien; 68 Director Since 2001 Mr. Beaubien is chairman
101 Industrial Road of Yankee Environmental
Turners Falls, MA 01376 Systems, Inc., a manu-
facturer of
meteorological measuring
systems. Prior to
January 1991, he was
senior vice president of
EG&G, Inc., a company
which makes and provides
a variety of scientific
and technically oriented
products and services.
From 1985 to January
1995, Mr. Beaubien
served as a director or
trustee on the boards of
the Kidder, Peabody &
Co. Incorporated mutual
funds.
--------------------------------------------------------------------------------
30 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
Supplemental Information (unaudited)
Number of
Portfolios in Fund Complex Other Directorships
Overseen by Director Held by Director
--------------------------------------------------------------------------------
Mr. Armstrong is a director or Mr. Armstrong is also a director of
trustee of 22 investment companies AlFresh Beverages Canada, Inc. (a
(consisting of 43 portfolios) for Canadian Beverage subsidiary of
which UBS Global AM or one of its AlFresh Foods Inc.) (since October
affiliates serves as investment 2000).
advisor, sub-advisor or manager.
Mr. Beaubien is a director or Mr. Beaubien is also a director of
trustee of 22 investment companies IEC Electronics, Inc., a
(consisting of 43 portfolios) for manufacturer of electronic
which UBS Global AM or one of its assemblies.
affiliates serves or as investment
advisor, sub-advisor or manager.
--------------------------------------------------------------------------------
UBS Global Asset Management 31
Investment Grade Municipal Income Fund Inc.
Supplemental Information (unaudited)
INDEPENDENT DIRECTORS (CONTINUED)
Term of
Office+ and
Position(s) Length of
Name, Address, Held with Time Principal Occupation(s)
and Age Fund Served During Past 5 Years
--------------------------------------------------------------------------------
Richard R. Burt; 55 Director Since 1995 Mr. Burt is chairman of
1275 Pennsylvania Ave., Diligence LLC
N.W. (international
Washington, D.C. 20004 information and security
firm) and IEP Advisors
(international
investments and
consulting firm). He was
the chief negotiator in
the Strategic Arms
Reduction Talks with the
former Soviet Union
(1989-1991) and the U.S.
Ambassador to the
Federal Republic of
Germany (1985-1989).
From 1991-1994, he
served as a partner of
McKinsey & Company
(management consulting
firm).
Meyer Feldberg; 60 Director Since 1992 Mr. Feldberg is Dean and
Columbia University Professor of Management
101 Uris Hall of the Graduate School
New York, New York of Business, Columbia
10027 University. Prior to
1989, he was president
of the Illinois
Institute of Technology.
George W. Gowen; 73 Director Since 1996 Mr. Gowen is a partner
666 Third Avenue in the law firm of
New York, New York Dunnington, Bartholow &
10017 Miller. Prior to May
1994, he was a partner
in the law firm of
Fryer, Ross & Gowen.
William W. Hewitt, Jr.***; Director Since 2001 Mr. Hewitt is retired.
74 From 1990 to January
c/o UBS Global Asset 1995, Mr. Hewitt served
Management (US) Inc. as a director or trustee
51 West 52nd Street on the boards of the
New York, New York Kidder, Peabody & Co.
10019-6114 Incorporated mutual
funds. From 1986-1988,
he was an executive vice
president and director
of mutual funds,
insurance and trust
services of Shearson
Lehman Brothers Inc.
From 1976-1986, he was
president of Merrill
Lynch Funds Distributor,
Inc.
Morton L. Janklow; 72 Director Since 2001 Mr. Janklow is senior
445 Park Avenue partner of Janklow &
New York, New York Nesbit Associates, an
10022 international literary
agency representing
leading authors in their
relationships with
publishers and motion
picture, television and
multi-media companies,
and of counsel to the
law firm of Janklow &
Ashley.
--------------------------------------------------------------------------------
32 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
Supplemental Information (unaudited)
Number of
Portfolios in Fund Complex Other Directorships
Overseen by Director Held by Director
--------------------------------------------------------------------------------
Mr. Burt is a director or trustee Mr. Burt is also a director of
of 22 investment companies Hollinger International, Inc.
(consisting of 43 portfolios) for (publishing), The Central European
which UBS Global AM or one of its Fund, Inc., The Germany Fund, Inc.,
affiliates serves as investment IGT, Inc. (provides technology to
advisor, sub-advisor or manager. gaming and wagering industry)
(since July 1999) and chairman of
Weirton Steel Corp. (makes and
finishes steel products) (since
April 1996). He is also a director
or trustee of funds in the Scudder
Mutual Funds Family (consisting of
47 portfolios).
Dean Feldberg is a director or Dean Feldberg is also a director of
trustee of 35 investment companies Primedia Inc. (publishing),
(consisting of 56 portfolios) for Federated Department Stores, Inc.
which UBS Global AM or one of its (operator of department stores),
affiliates serves as investment Revlon, Inc. (cosmetics), Select
advisor, sub-advisor or manager. Medical Inc. (healthcare services)
and SAPPI, Ltd. (producer of
paper).
Mr. Gowen is a director or trustee None
of 35 investment companies
(consisting of 56 portfolios) for
which UBS Global AM or one of its
affiliates serves as investment
advisor, sub-advisor or manager.
Mr. Hewitt is a director or trustee Mr. Hewitt is also a d Guardian
of 22 investment companies Life Insurance Company Mutual Funds
(consisting of 43 portfolios) for (consisting of 19 portfolios).
which UBS Global AM or one of its
affiliates serves as investment
advisor, sub-advisor or manager.
Mr. Janklow is a director or None
trustee of 22 investment companies
(consisting of 43 portfolios) for
which UBS Global AM or one of its
affiliates serves as investment
advisor, sub-advisor or manager.
--------------------------------------------------------------------------------
UBS Global Asset Management 33
Investment Grade Municipal Income Fund Inc.
Supplemental Information (unaudited)
INDEPENDENT DIRECTORS (CONCLUDED)
Term of
Office+ and
Position(s) Length of
Name, Address, Held with Time Principal Occupation(s)
and Age Fund Served During Past 5 Years
--------------------------------------------------------------------------------
Frederic V. Malek; 65 Director Since 1996 Mr. Malek is chairman of
1455 Pennsylvania Avenue, Thayer Capital Partners
N.W. (merchant bank) and
Suite 350 chairman of Thayer Hotel
Washington, D.C. Investors III, Thayer
20004 Hotel Investors II and
Lodging Opportunities
Fund (hotel investment
partnerships). From
January 1992 to November
1992, he was campaign
manager of Bush-Quayle
'92. From 1990 to 1992,
he was vice chairman
and, from 1989 to 1990,
he was president of
Northwest Airlines Inc.
and NWA Inc. (holding
company of Northwest
Airlines Inc.). Prior to
1989, he was employed by
the Marriott Corporation
(hotels, restaurants,
airline catering and
contract feeding), where
he most recently was an
executive vice president
and president of
Marriott Hotels and
Resorts.
Carl W. Schafer; 66 Director Since 1996 Mr. Schafer is president
66 Witherspoon Street of the Atlantic
#1100 Foundation (charitable
Princeton, NJ 08542 foundation). Prior to
January 1993, he was
chairman of the
Investment Advisory
Committee of the Howard
Hughes Medical
Institute.
William D. White; 68 Director Since 2001 Mr. White is retired.
P.O. Box 199 From February 1989
Upper Black Eddy, PA through March 1994, he
18972 was president of the
National League of
Professional Baseball
Clubs. Prior to 1989, he
was a television
sportscaster for
WPIX-TV, New York. Mr.
White served on the
Board of Directors of
Centel from 1989 to 1993
and until recently on
the board of directors
of Jefferson Banks
Incorporated,
Philadelphia, PA.
--------------------------------------------------------------------------------
34 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
Supplemental Information (unaudited)
Number of
Portfolios in Fund Complex Other Directorships
Overseen by Director Held by Director
--------------------------------------------------------------------------------
Mr. Malek is a director or trustee Mr. Malek is also a director of
of 22 investment companies Aegis Communications, Inc.
(consisting of 43 portfolios) for (tele-services), American
which UBS Global AM or one of its Management Systems, Inc.
affiliates serves as investment (management consulting and computer
advisor, sub-advisor or manager. related services), Automatic Data
Processing, Inc. (computing
services), CB Richard Ellis, Inc.
services), FPL Group, Inc. (elect
Manor Care, Inc. (health care), a
Airlines Inc.
Mr. Schafer is a director or Mr. Schafer is also a director of
trustee of 22 investment companies Labor Ready, Inc. (temporary
(consisting of 43 portfolios) for employment), Roadway Corp.
which UBS Global AM or one of its (trucking), Guardian Life Insurance
affiliates serves as investment Company Mutual Funds (consisting of
advisor, sub-advisor or manager. 19 portfolios), the Harding,
Loevner Funds (consisting of 4
portfolios), E.I.I. Realty
Securities Trust (investment
company) and Frontier Oil
Corporation.
Mr. White is a director or trustee None
of 22 investment companies
(consisting of 43 portfolios) for
which UBS Global AM or one of its
affiliates serves as investment
advisor, sub-advisor or manager.
--------------------------------------------------------------------------------
UBS Global Asset Management 35
Investment Grade Municipal Income Fund Inc.
Supplemental Information (unaudited)
OFFICERS
Term of Principal Occupation(s)
Office+ and During Past 5 Years
Position(s) Length of Number of Portfolios in
Name, Address, Held with Time Fund Complex For Which
and Age Fund Served Person Serves as Officer
--------------------------------------------------------------------------------
Thomas Disbrow**; Vice President Since 2000 Mr. Disbrow is a
36 and Assistant director and a senior
Treasurer manager of the mutual
fund finance department
of UBS Global AM. Prior
to November 1999, he was
a vice president of
Zweig/Glaser Advisers.
Mr. Disbrow is a vice
president and assistant
treasurer of 22
investment companies
(consisting of 43
portfolios) for which
UBS Global AM or one of
its affiliates serves as
investment advisor,
sub-advisor or manager.
Amy R. Doberman**; Vice President Since 2000 Ms. Doberman is a
40 and Secretary managing director and
general counsel of UBS
Global AM. From December
1997 through July 2000,
she was general counsel
of Aeltus Investment
Management, Inc. Prior
to working at Aeltus,
Ms. Doberman was
assistant chief counsel
of the SEC's Division of
Investment Management.
Ms. Doberman is vice
president and secretary
of UBS Supplementary
Trust and a vice
president and secretary
of 24 investment
companies (consisting of
81 portfolios) and vice
president and assistant
secretary of one
investment company
(consisting of 2
portfolios) for which
UBS Global AM or one of
its affiliates serves as
investment advisor,
sub-advisor or manager.
--------------------------------------------------------------------------------
36 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
Supplemental Information (unaudited)
OFFICERS (CONTINUED)
Term of Principal Occupation(s)
Office+ and During Past 5 Years
Position(s) Length of Number of Portfolios in
Name, Address, Held with Time Fund Complex For Which
and Age Fund Served Person Serves as Officer
--------------------------------------------------------------------------------
Elbridge T. Gerry III**; Vice President Since 1996 Mr. Gerry is a managing
45 director-- fixed income
of UBS Global AM. Mr.
Gerry is a vice
president of 6
investment companies
(consisting of 11
portfolios) for which
UBS Global AM or one of
its affiliates serves as
investment advisor,
sub-advisor or manager.
David M. Goldenberg**; Vice President Since 2002 Mr. Goldenberg is an
36 and Assistant executive director and
Secretary deputy general counsel
of UBS Global AM. From
2000-2002 he was
director, legal affairs
at Lazard Asset
Management. Mr.
Goldenberg was global
director of compliance
for SSB Citi Asset
Management Group from
1998-2000. He was
associate general
counsel at Smith Barney
Asset Management from
1996-1998. Prior to
working at Smith Barney
Asset Management, Mr.
Goldenberg was branch
chief and senior counsel
in the SEC's Division of
Investment Management.
Mr. Goldenberg is a vice
president and assistant
secretary of UBS
Supplementary Trust,
vice president and
assistant secretary of
24 investment companies
(consisting of 81
portfolios) and a vice
president and secretary
of one investment
company (consisting of 2
portfolios) for which
UBS Global AM or one of
its affiliates serves as
investment advisor,
sub-advisor or manager.
--------------------------------------------------------------------------------
UBS Global Asset Management 37
Investment Grade Municipal Income Fund Inc.
Supplemental Information (unaudited)
OFFICERS (CONTINUED)
Term of Principal Occupation(s)
Office+ and During Past 5 Years
Position(s) Length of Number of Portfolios in
Name, Address, Held with Time Fund Complex For Which
and Age Fund Served Person Serves as Officer
--------------------------------------------------------------------------------
Kevin J. Mahoney**; Vice President Since 1999 Mr. Mahoney is a
37 and Assistant director and a senior
Treasurer manager of the mutual
fund finance department
of UBS Global AM. Prior
to April 1999, he was
the manager of the
mutual fund internal
control group of Salomon
Smith Barney. Mr.
Mahoney is a vice
president and assistant
treasurer of 22
investment companies
(consisting of 43
portfolios) for which
UBS Global AM or one of
its affiliates serves as
investment advisor,
sub-advisor or manager.
Paul H. Schubert**; 39 Vice President Since 1994 Mr. Schubert is an
and Treasurer executive director and
head of the mutual fund
finance department of
UBS Global AM. Mr.
Schubert is treasurer
and principal accounting
officer of UBS
Supplementary Trust and
two investment companies
(consisting of 38
portfolios) and a vice
president and treasurer
of 22 investment
companies (consisting of
43 portfolios) and
treasurer and chief
financial officer of one
investment company
(consisting of 2
portfolios) for which
UBS Global AM, or one of
its affiliates serves as
investment advisor,
sub-advisor or manager.
--------------------------------------------------------------------------------
38 UBS Global Asset Management
Investment Grade Municipal Income Fund Inc.
Supplemental Information (unaudited)
OFFICERS (CONCLUDED)
Term of Principal Occupation(s)
Office+ and During Past 5 Years
Position(s) Length of Number of Portfolios in
Name, Address, Held with Time Fund Complex For Which
and Age Fund Served Person Serves as Officer
--------------------------------------------------------------------------------
Brian M. Storms**; 48 President Since 2000 Mr. Storms is chief
executive officer (since
July 2002), director and
president of UBS Global
AM (since March 1999).
He is also chief
executive officer (since
July 2002), a member of
the board of directors
and president of UBS
Global AM (Americas) and
UBS Global Asset
Management (New York)
Inc. (since October
2001). Mr. Storms was
chief executive officer
of UBS Global AM from
October 2000 to
September 2001 and chief
operating officer
(2001-2002). He was
chief operating officer
of UBS Global AM
(Americas) and UBS
Global AM (New York)
from September 2001 to
July 2002. He was a
director or trustee of
several investment
companies in the UBS
Family of Funds
(1999-2001). He was
president of Prudential
Investments (1996-1999).
Prior to joining
Prudential Investments
he was a managing
director at Fidelity
Investments. Mr. Storms
is president and trustee
of UBS Supplementary
Trust and of two
investment companies
(consisting of 38
portfolios) and
president of 22
investment companies
(consisting of 43
portfolios) and trustee
and chairman of one
investment company
(consisting of 2
portfolios) for which
UBS Global AM or one of
its affiliates serves as
investment advisor,
sub-advisor or manager.
Keith A. Weller**; 41 Vice President Since 1995 Mr. Weller is a director
and Assistant and senior associate
Secretary general counsel of UBS
Global AM. Mr. Weller is
a vice president and
assistant secretary of
22 investment companies
(consisting of 43
portfolios) for which
UBS Global AM or one of
its affiliates serves as
investment advisor,
sub-advisor or manager.
----------
* This person's business address is 1285 Avenue of the Americas, New York, New
York 10019-5028.
** This person's business address is 51 West 52nd Street, New York, New York
10019-6114.
*** Address for mailing purposes only.
+ Each Director serves until the next annual meeting of shareholders or until
his or her successor is elected or qualified. Officers of the Fund are
appointed by the Directors and serve at the pleasure of the Board.
++ Mrs. Alexander and Mr. Bewkes are "interested persons" of the Fund as
defined in the Investment Company Act by virtue of their positions with UBS
Global AM and/or UBS PaineWebber.
--------------------------------------------------------------------------------
UBS Global Asset Management 39
(This page has been left blank intentionally.)
DIRECTORS
E. Garrett Bewkes, Jr. George W. Gowen
CHAIRMAN William W. Hewitt, Jr.
Margo N. Alexander Morton L. 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
UBS Global Asset Management (US) 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.
(C) 2002 UBS GLOBAL ASSET MANAGEMENT (US) INC.
ALL RIGHTS RESERVED.
[LOGO] UBS
UBS GLOBAL ASSET MANAGEMENT (US) INC.
51 West 52nd Street
New York, New York 10019-6114