UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-07096 ---------------------------------------------- Investment Grade Municipal Income Fund Inc. ------------------------------------------------------------------------------ (Exact name of registrant as specified in charter) 51 West 52nd Street, New York, New York 10019-6114 ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip code) Mark F. Kemper, Esq. UBS Global Asset Management (US) Inc. 51 West 52nd Street New York, NY 10019-6114 (Name and address of agent for service) Copy to: Jack W. Murphy, Esq. Dechert LLP 1775 I Street, N.W. Washington, DC 20006-2401 Registrant's telephone number, including area code: 212-882 5000 Date of fiscal year end: September 30 Date of reporting period: March 31, 2005 ITEM 1. REPORTS TO STOCKHOLDERS. --------------------------------- [UBS GLOBAL ASSET MANAGEMENT LOGO] INVESTMENT GRADE MUNICIPAL INCOME FUND INC. Semiannual Report March 31, 2005 Investment Grade Municipal Income Fund Inc. May 26, 2005 DEAR SHAREHOLDER, We present you with the semiannual report for Investment Grade Municipal Income Fund Inc. (the "Fund") for the six months ended March 31, 2005. PERFORMANCE For the six-month period, the Fund's net asset value return was 1.22%. On a market price basis, the Fund declined 4.11%. Over the same period, the Fund's peer group, the Lipper General Municipal Debt Funds (Leveraged) median posted net asset value and market price returns of 2.66% and -0.75%, respectively. Finally, the Fund's benchmark, the Lehman Brothers U.S. Municipal Index (the "Index"), returned 1.21%. (For more performance information, please refer to "Performance At A Glance" on page 5). As the market price for both the Fund and the median of its peer group moved down while net asset values appreciated, discounts widened during the period. The Fund continued to use leverage during the period, which was 41% of total assets as of March 31, 2005. Leverage can magnify returns on the upside and on the downside, and the degree of leverage can create wider dispersions of returns within the Fund's peer group. 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 AN INTERVIEW WITH PORTFOLIO MANAGER WILLIAM VERONDA Q. CAN YOU DESCRIBE THE ECONOMIC ENVIRONMENT DURING THE REPORTING PERIOD? A. The US economy faced a number of challenges during the reporting period, including record high oil prices, rising interest rates, a mixed job market, uncertainty surrounding the presidential election and geopolitical events. Despite these issues, the economy proved to be surprisingly resilient. Following a robust 4.0% gain in the third quarter of 2004, gross domestic product (GDP) growth was 3.8% in the fourth quarter. Preliminary estimates for first quarter 2005 GDP growth were 3.5%. -------------------------------------------------------------------------------- 1 Investment Grade Municipal Income Fund Inc. Q. HOW DID THE FED REACT TO THESE ECONOMIC CONDITIONS? A. As expected, the Federal Reserve Board (the "Fed") continued to raise interest rates over the period in an attempt to ward off a potential increase in inflation. Following three rate hikes from June through September 2004, the Fed increased its target for the federal funds rate (or "fed funds" rate)-the rate that banks charge one another for funds they borrow on an overnight basis-in 0.25% increments four times during the reporting period. This series of seven rate hikes brought the fed funds rate from 1.00% in June 2003 to 2.75% by the end of March 2005. Toward the end of the period, the Fed appeared to become increasingly concerned about inflation. Coinciding with the March rate hike, the Fed continued to say it expected to raise rates at a "measured" pace. However, it also said that inflationary pressures "have picked up in recent months and pricing power is more evident," whereas in February it stated that inflation was "well contained." Many market participants believed this telegraphed the potential for rate hikes larger than 0.25% in the future. The Fed raised rates again after the period closed, bringing the rate to 3.0%. Q: HOW DID YOU POSITION THE FUND'S PORTFOLIO DURING THE PERIOD? A: Given our expectation that yields would rise in concert with the Fed's tightening cycle, the Fund's duration was shorter than the benchmark during the period. While this led to mixed results over the period, our yield curve positioning generally enhanced results. Given our expectations that the yield curve would flatten, whereby the gap between short- and long-term yields narrows, we maintained a barbell strategy for the portfolio. In doing so, we held relative overweights in both short-term and longer-term securities, coupled with an underweight in the 2- to 8-year portion of the curve. This positioning proved to be beneficial for results as longer-term securities performed well, and the 2- to 8-year segment of the yield curve lagged the overall market. Q: COULD YOU DESCRIBE SOME NEW PURCHASES MADE FOR THE FUND OVER THE PERIOD? A: We added Los Angeles Department of Water and Power bonds to the Fund's portfolio. These securities offer a 5.0% coupon and mature in 2027. We also purchased Massachusetts Bay Transportation bonds with a coupon of 5.0%, maturing in 2032. These additions were consistent with our theme of emphasizing bonds on the long end of the curve. We subsequently sold the -------------------------------------------------------------------------------- 2 Investment Grade Municipal Income Fund Inc. Massachusetts Bay Transportation bonds as they performed well over the period, and we believed became richly valued. We also purchased New Jersey Educational Facilities Authority bonds, issued on behalf of Princeton University. We felt these AAA-rated securities, which offer a 5.0% coupon and mature in 2029, were compellingly priced. Q: WERE THERE ANY STATES THAT YOU FOUND TO BE PARTICULARLY ATTRACTIVE? A: We focused on states that we believed were exhibiting improved fiscal health and whose municipal bonds were attractively valued. For example, we held several blocks of bonds from the California tax-exempt market. Following its financial crisis in 2003, there have been considerable improvements in the state's fiscal situation. Our holdings in California enhanced results as the state's bonds continued to outperform the overall market during the period. Given this appreciation, we believe California municipal securities are fairly valued given their underlying fundamental risks. Q: WHAT IS YOUR VIEW ON THE HEALTHCARE AND TOBACCO SECTORS? A: Given an environment of declining government reimbursements, we were negative on the healthcare sector in general. However, as the period progressed we selectively purchased certain hospital bonds we believed offered yields that fairly compensated investors for their risks. This strategy proved beneficial for the Fund. We continued to avoid tobacco settlement bonds as we maintain a negative long-term outlook for the sector. This positioning detracted from results over the period, as these more speculative tobacco bonds performed well. Q: WHICH SECTORS DID YOU EMPHASIZE OVER THE FISCAL YEAR? A: The Fund's portfolio is highly diversified and is exposed to a wide variety of sectors. Having said that, one area that we found attractive was the airport sector. Unlike the troubled airline industry, airports have performed well as the economy has improved. Both business and consumer flight trends have surpassed their pre-September 11, 2001 levels. Q: CAN YOU EXPLAIN HOW THE USE OF LEVERAGE CAN AFFECT THE FUND'S PORTFOLIO? A: As of March 31, 2005, 41% of the Fund's total assets were leveraged. This means that the Fund had "borrowed" money by issuing preferred shares. While leverage can increase the Fund's short-term volatility, we believe it better positions us to seek our goal of generating high current income that is exempt from federal income tax, consistent with the preservation of capital. -------------------------------------------------------------------------------- 3 Investment Grade Municipal Income Fund Inc. Q. HOW WAS THE FUND POSITIONED AT THE END OF THE REPORTING PERIOD? A. At this point, it appears that US economic growth will be sustainable, despite the increase in oil prices. In particular, consumer spending has remained solid and corporate capital expenditures appear to be improving. In terms of the Fund's portfolio, we expect to remain defensively positioned and anticipate continuing to employ a barbell positioning structure. We will look for opportunities where individual securities appear to be structurally mispriced and focus on states with improving balance sheets whose bonds are attractively valued. 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/globalam-us. Sincerely, /s/ W. Douglas Beck /s/ William Veronda W. Douglas Beck, CFA William Veronda President Portfolio Manager Investment Grade Municipal Income Investment Grade Municipal Income Fund Inc. Fund Inc. Executive Director Executive Director UBS Global Asset Management (US) Inc. UBS Global Asset Management (US) Inc. This letter is intended to assist shareholders in understanding how the Fund performed during the six months ended March 31, 2005. The views and opinions in the letter were current as of May 26, 2005. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and we reserve the right to change our views about individual securities, sectors and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the Fund's future investment intent. We encourage you to consult your financial advisor regarding your personal investment program. * Mutual funds are sold by prospectus only. You should read it carefully and consider a fund's investment objectives, risks, charges, expenses and other important information contained in the prospectus before investing. Prospectuses for most of our funds can be obtained from your financial advisor, by calling UBS funds at 800-647 1568 or by visiting our Web site at www.ubs.com/globalam-us. -------------------------------------------------------------------------------- 4 Investment Grade Municipal Income Fund Inc. PERFORMANCE AT A GLANCE (UNAUDITED) AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED 3/31/05 <TABLE> NET ASSET VALUE RETURNS 6 MONTHS 1 YEAR 5 YEARS 10 YEARS ----------------------------------------------------------------------------------------------------------- Investment Grade Municipal Income Fund Inc. 1.22% 3.68% 6.86% 6.51% ----------------------------------------------------------------------------------------------------------- Lipper General Municipal Debt Funds (Leveraged) median 2.66% 4.49% 8.14% 6.96% ----------------------------------------------------------------------------------------------------------- MARKET PRICE RETURNS ----------------------------------------------------------------------------------------------------------- Investment Grade Municipal Income Fund Inc. (4.11)% (8.45)% 8.24% 7.53% ----------------------------------------------------------------------------------------------------------- Lipper General Municipal Debt Funds (Leveraged) median (0.75)% (2.90)% 9.17% 6.90% ----------------------------------------------------------------------------------------------------------- </TABLE> Past performance does not predict future performance. The return and 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 payable dates. NAV and market price returns for periods of less than one year are cumulative. Returns do not reflect the deduction of taxes that a shareholder could pay on Fund distributions. 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. <TABLE> SHARE PRICE, DIVIDEND AND YIELDS AS OF 3/31/05 ------------------------------------------------------------------------------------------------- Market Price $13.17 ------------------------------------------------------------------------------------------------- Net Asset Value (per share applicable to common shareholders) $15.50 ------------------------------------------------------------------------------------------------- 12-Month Net Investment Income Dividend to Common Shareholders (period ended 3/31/05) $0.8375 ------------------------------------------------------------------------------------------------- March 2005 Dividend $0.0625 ------------------------------------------------------------------------------------------------- Market Yield* 5.69% ------------------------------------------------------------------------------------------------- NAV Yield* 4.84% ------------------------------------------------------------------------------------------------- </TABLE> * Market yield is calculated by multiplying the March dividend by 12 and dividing by the month-end market price. NAV yield is calculated by multiplying the March dividend by 12 and dividing by the month-end net asset value. Prices and yields will vary. -------------------------------------------------------------------------------- 5 Investment Grade Municipal Income Fund Inc. PORTFOLIO STATISTICS (UNAUDITED) <TABLE> CHARACTERISTICS 3/31/05 9/30/04 3/31/04 ----------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shareholders (mm) $160.5 $163.7 $164.5 ----------------------------------------------------------------------------------------------------------------------- Weighted Average Maturity 11.5 yrs 11.7 yrs 11.2 yrs ----------------------------------------------------------------------------------------------------------------------- Weighted Average Duration 4.3 yrs 5.1 yrs 5.1 yrs ----------------------------------------------------------------------------------------------------------------------- Weighted Average Coupon 5.1% 5.5% 5.3% ----------------------------------------------------------------------------------------------------------------------- Leverage** 40.6% 39.4% 40.0% ----------------------------------------------------------------------------------------------------------------------- Callable/Maturing Within Five Years* 19.5% 9.1% 6.0% ----------------------------------------------------------------------------------------------------------------------- Callable/Maturing Beyond Five Years* 80.5% 90.9% 94.0% ----------------------------------------------------------------------------------------------------------------------- PORTFOLIO COMPOSITION*** 3/31/05 9/30/04 3/31/04 ----------------------------------------------------------------------------------------------------------------------- Long-Term Municipal Bonds 147.9% 160.2% 155.1% ----------------------------------------------------------------------------------------------------------------------- Short-Term Municipal Notes 18.6 6.4 9.6 ----------------------------------------------------------------------------------------------------------------------- Futures 0.1 (0.0)**** (0.1) ----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities 1.9 0.6 2.3 ----------------------------------------------------------------------------------------------------------------------- Liquidation Value of auction preferred shares (68.5) (67.2) (66.9) ----------------------------------------------------------------------------------------------------------------------- TOTAL 100.0% 100.0% 100.0% ----------------------------------------------------------------------------------------------------------------------- CREDIT QUALITY*** 3/31/05 9/30/04 3/31/04 ----------------------------------------------------------------------------------------------------------------------- AAA 66.3% 59.2% 47.0% ----------------------------------------------------------------------------------------------------------------------- AA 27.5 40.3 46.4 ----------------------------------------------------------------------------------------------------------------------- A 22.6 29.4 27.6 ----------------------------------------------------------------------------------------------------------------------- BBB 18.2 18.0 20.7 ----------------------------------------------------------------------------------------------------------------------- A1 18.6 6.4 9.6 ----------------------------------------------------------------------------------------------------------------------- Nonrated 13.3 13.3 13.4 ----------------------------------------------------------------------------------------------------------------------- Futures 0.1 (0.0)**** (0.1) ----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities 1.9 0.6 2.3 ----------------------------------------------------------------------------------------------------------------------- Liquidation Value of auction preferred shares (68.5) (67.2) (66.9) ----------------------------------------------------------------------------------------------------------------------- TOTAL 100.0% 100.0% 100.0% ----------------------------------------------------------------------------------------------------------------------- TOP FIVE STATES* 3/31/05 9/30/04 3/31/04 ----------------------------------------------------------------------------------------------------------------------- California 19.8% California 17.7% New York 16.0% ----------------------------------------------------------------------------------------------------------------------- Texas 10.4 New York 11.4 California 12.7 ----------------------------------------------------------------------------------------------------------------------- New York 9.9 Texas 10.7 Texas 11.6 ----------------------------------------------------------------------------------------------------------------------- North Carolina 5.8 Florida 6.3 Indiana 6.3 ----------------------------------------------------------------------------------------------------------------------- Indiana 5.6 Indiana 5.8 Illinois 5.0 ----------------------------------------------------------------------------------------------------------------------- TOTAL 51.5% 51.9% 51.6% ----------------------------------------------------------------------------------------------------------------------- TOP FIVE SECTORS* 3/31/05 9/30/04 3/31/04 ----------------------------------------------------------------------------------------------------------------------- Power 21.2% Power 22.0% Power 23.5% ----------------------------------------------------------------------------------------------------------------------- Hospital 10.9 Lease 12.4 Water & Sewer 15.7 ----------------------------------------------------------------------------------------------------------------------- Lease 10.7 Water & Sewer 9.4 Lease 12.7 ----------------------------------------------------------------------------------------------------------------------- Water 8.9 Hospital 6.8 Escrowed to Maturity 6.7 ----------------------------------------------------------------------------------------------------------------------- University 7.9 Escrowed to Maturity 6.1 Pre-refunded 5.3 ----------------------------------------------------------------------------------------------------------------------- TOTAL 59.6% 56.7% 63.9% ----------------------------------------------------------------------------------------------------------------------- </TABLE> * Weightings represent percentages of total investments 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. Credit quality ratings designated by Standard & Poor's Rating Group, an independent rating agency. **** Represents less than (0.05)% of net assets applicable to common shareholders. -------------------------------------------------------------------------------- 6 Investment Grade Municipal Income Fund Inc. PORTFOLIO OF INVESTMENTS-MARCH 31, 2005 (UNAUDITED) <TABLE> PRINCIPAL AMOUNT MOODY'S S&P MATURITY INTEREST (000) RATING RATING DATES RATES VALUE ------------------------------------------------------------------------------------------------------------ LONG-TERM MUNICIPAL BONDS - 147.91% ------------------------------------------------------------------------------------------------------------ ARIZONA - 1.59% $ 2,380 Arizona State Transportation Board Highway Revenue- Series B Aa1 AAA 07/01/18 5.250% $ 2,559,000 ------------------------------------------------------------------------------------------------------------ ARKANSAS - 1.05% 1,620 Little Rock Capital Improvement Revenue Parks & Recreation Projects-Series A NR NR 01/01/18 5.700 1,687,700 ------------------------------------------------------------------------------------------------------------ CALIFORNIA - 33.02% 5,000 California State Department Water Resources Revenue- Series A A2 BBB+ 05/01/16 5.875 5,578,150 ------------------------------------------------------------------------------------------------------------ 5,000 California State Economic Recovery General Obligation- Series A (FGIC Insured) Aaa AAA 07/01/14 5.250 5,531,900 ------------------------------------------------------------------------------------------------------------ 4,000 California State Economic Recovery General Obligation- Series A (MBIA Insured) Aaa AAA 07/01/12 5.000 4,359,680 ------------------------------------------------------------------------------------------------------------ 3,000 California Statewide Communities Development Authority-Irvine Apartment Communities-Series A-3 Baa2 BBB 05/15/25+ 5.100 3,135,000 ------------------------------------------------------------------------------------------------------------ 1,750 California Statewide Communities Development Authority Revenue-Kaiser Permanente-Series H NR A 04/01/34+ 2.625++ 1,704,693 ------------------------------------------------------------------------------------------------------------ 2,150 Fontana Redevelopment Agency Tax Allocation Jurupa Hills Redevelopment Project A NR A- 10/01/17 5.500 2,260,574 ------------------------------------------------------------------------------------------------------------ 2,905 Inglewood Unified School District 1998 Election-Series C (FSA Insured) Aaa AAA 10/01/28 5.000 3,006,646 ------------------------------------------------------------------------------------------------------------ 5,000 Los Angeles County Sanitation Funding Authority Revenue- Series A (FSA Insured) Aaa AAA 10/01/18 5.000 5,292,500 ------------------------------------------------------------------------------------------------------------ 3,000 Los Angeles Water & Power Revenue Power Systems- Series A (MBIA Insured) Aaa AAA 07/01/16 5.000 3,200,160 ------------------------------------------------------------------------------------------------------------ 3,200 Los Angeles Water & Power Revenue Power Systems- Series A-A-1 (FSA Insured) Aaa AAA 07/01/21 5.250 3,406,336 ------------------------------------------------------------------------------------------------------------ 5,000 Los Angeles Water & Power Revenue Power Systems Refunding-Series A, Subseries A-2 (MBIA Insured) Aaa AAA 07/01/27 5.000 5,153,000 ------------------------------------------------------------------------------------------------------------ 6,000 Los Angeles Water & Power Revenue Power Systems- Series A-A-1 (MBIA Insured)# Aaa AAA 07/01/14 5.000 6,470,220 ------------------------------------------------------------------------------------------------------------ 3,500 Metropolitan Water District of Southern California Waterworks-Series A Aaa AAA 03/01/18 5.250 3,898,860 ------------------------------------------------------------------------------------------------------------ 52,997,719 ------------------------------------------------------------------------------------------------------------ COLORADO - 1.11% 1,672 University of Colorado Participation Interests NR A+ 12/01/13 6.000 1,779,422 ------------------------------------------------------------------------------------------------------------ </TABLE> -------------------------------------------------------------------------------- 7 Investment Grade Municipal Income Fund Inc. PORTFOLIO OF INVESTMENTS-MARCH 31, 2005 (UNAUDITED) <TABLE> PRINCIPAL AMOUNT MOODY'S S&P MATURITY INTEREST (000) RATING RATING DATES RATES VALUE -------------------------------------------------------------------------------------------------------------- LONG-TERM MUNICIPAL BONDS - (CONTINUED) -------------------------------------------------------------------------------------------------------------- FLORIDA - 2.11% $ 1,175 Gainesville Utilities Systems Revenue-Series A Aa2 AA 10/01/20 5.250% $1,271,221 -------------------------------------------------------------------------------------------------------------- 2,000 Orlando Utilities Commission Water & Electric Revenue- Series A Aa1 AA 10/01/19 5.000 2,107,840 -------------------------------------------------------------------------------------------------------------- 3,379,061 -------------------------------------------------------------------------------------------------------------- ILLINOIS - 0.94% 1,200 Illinois Educational Facilities Authority Revenue-Augustana College-Series A Baa1 NR 10/01/22 5.625 1,250,232 -------------------------------------------------------------------------------------------------------------- 250 Metropolitan Pier & Exposition Authority A1 NR 06/15/27 6.500 251,213 -------------------------------------------------------------------------------------------------------------- 1,501,445 -------------------------------------------------------------------------------------------------------------- INDIANA - 9.38% 1,000 Clark Pleasant Community School Building Corp. First Mortgage (AMBAC Insured) Aaa AAA 07/15/17 5.500 1,091,450 -------------------------------------------------------------------------------------------------------------- 4,480 Indiana Health Facility Financing Authority Revenue Ascension Health Subordinated Credit-A# Aa3 AA- 04/01/10 5.000 4,738,406 -------------------------------------------------------------------------------------------------------------- 3,305 Indiana Transportation Financing Authority Airport Facilities Lease Revenue-Series A A1 AA- 11/01/12 5.500 3,429,169 -------------------------------------------------------------------------------------------------------------- 2,000 Indiana Transportation Financing Authority Airport Facilities Lease Revenue-Series A A1 AA- 11/01/17 5.500 2,075,140 -------------------------------------------------------------------------------------------------------------- 3,400 Marion County Convention & Recreational Facilities Authority Excise Tax Revenue-Series A (MBIA Insured) Aaa AAA 06/01/17 5.500 3,714,908 -------------------------------------------------------------------------------------------------------------- 15,049,073 -------------------------------------------------------------------------------------------------------------- KENTUCKY - 4.97% 7,750 Boone County Pollution Control Revenue-Dayton Power & Light Co.-Series A Baa2 BBB- 11/15/22 6.500 7,982,500 -------------------------------------------------------------------------------------------------------------- MASSACHUSETTS - 6.32% 5,865 Massachusetts State Consolidated Loan-Series A Aa2 AA 08/01/16 5.000 6,314,493 -------------------------------------------------------------------------------------------------------------- 1,305 University of Massachusetts Building Authority Revenue Refunding-Series 05-1 (AMBAC Insured) Aaa AAA 05/01/12 5.000 1,409,570 -------------------------------------------------------------------------------------------------------------- 1,235 University of Massachusetts Building Authority Revenue Refunding-Series 05-1 (AMBAC Insured) Aaa AAA 05/01/13 5.000 1,334,862 -------------------------------------------------------------------------------------------------------------- 1,000 University of Massachusetts Building Authority Revenue Refunding-Series 05-1 (AMBAC Insured) Aaa AAA 05/01/14 5.000 1,082,390 -------------------------------------------------------------------------------------------------------------- 10,141,315 -------------------------------------------------------------------------------------------------------------- </TABLE> -------------------------------------------------------------------------------- 8 Investment Grade Municipal Income Fund Inc. PORTFOLIO OF INVESTMENTS-MARCH 31, 2005 (UNAUDITED) <TABLE> PRINCIPAL AMOUNT MOODY'S S&P MATURITY INTEREST (000) RATING RATING DATES RATES VALUE -------------------------------------------------------------------------------------------------------------------- LONG-TERM MUNICIPAL BONDS - (CONTINUED) -------------------------------------------------------------------------------------------------------------------- MICHIGAN - 4.96% $ 3,425 Michigan State Building Authority Revenue Program-Series III Aa3 AA- 10/15/16 5.375% $ 3,728,832 -------------------------------------------------------------------------------------------------------------------- 2,055 Michigan State Hospital Finance Authority Revenue Ascension Health Subordinated Credit-A Aa3 AA- 05/01/12 5.000 2,184,506 -------------------------------------------------------------------------------------------------------------------- 2,000 Michigan State Strategic Fund Limited Obligation Revenue-Ford Motor Co. Project-Series A Baa1 BBB- 02/01/06 7.100 2,052,500 -------------------------------------------------------------------------------------------------------------------- 7,965,838 -------------------------------------------------------------------------------------------------------------------- MINNESOTA - 0.95% 1,500 Shakopee Health Care Facilities-Saint Francis Regional Medical Center Revenue Refunding NR BBB 09/01/17 5.000 1,526,205 -------------------------------------------------------------------------------------------------------------------- NEVADA - 4.22% 6,750 Clark County Pollution Control Revenue-Nevada Power Co. Project-Series B (FGIC Insured) Aaa AAA 06/01/19 6.600 6,773,557 -------------------------------------------------------------------------------------------------------------------- NEW JERSEY - 6.47% 10,000 New Jersey State Educational Facilities Authority Revenue Princeton University-Series D# Aaa AAA 07/01/29 5.000 10,389,600 -------------------------------------------------------------------------------------------------------------------- NEW MEXICO - 0.67% 1,000 University of New Mexico Revenue Sub-Lien-Series A Aa3 AA 06/01/16 5.250 1,078,460 -------------------------------------------------------------------------------------------------------------------- NEW YORK - 15.29% 4,030 Long Island Power Authority Electric Systems Revenue- Series C A3 A- 09/01/17 5.500 4,356,510 -------------------------------------------------------------------------------------------------------------------- 1,765 Metropolitan Transportation Authority New York Dedicated Tax Fund-Series A (FSA Insured) Aaa AAA 11/15/24 5.250 1,879,072 -------------------------------------------------------------------------------------------------------------------- 2,500 New York City General Obligation-Series G A1 A 08/01/13 5.000 2,661,875 -------------------------------------------------------------------------------------------------------------------- 1,625 Triborough Bridge & Tunnel Authority Revenue-Series B Aa3 AA- 11/15/18 5.250 1,758,380 -------------------------------------------------------------------------------------------------------------------- 3,140 Triborough Bridge & Tunnel Authority Revenue-Series B Aa3 AA- 11/15/19 5.250 3,390,164 -------------------------------------------------------------------------------------------------------------------- 3,350 Triborough Bridge & Tunnel Authority Revenue-Series Y Aa3 AAA 01/01/12 6.000 3,770,492 -------------------------------------------------------------------------------------------------------------------- 6,400 Triborough Bridge & Tunnel Authority Revenue- Subordinate Bonds A1 A+ 11/15/30 5.250 6,730,240 -------------------------------------------------------------------------------------------------------------------- 24,546,733 -------------------------------------------------------------------------------------------------------------------- NORTH CAROLINA - 9.61% 5,000 North Carolina Eastern Municipal Power Agency-Series A (Escrowed to Maturity) Baa2 BBB 01/01/11 5.500 5,362,950 -------------------------------------------------------------------------------------------------------------------- 2,000 North Carolina Eastern Municipal Power Agency-Series A (Escrowed to Maturity) Baa2 BBB 01/01/12 5.500 2,153,740 -------------------------------------------------------------------------------------------------------------------- </TABLE> 9 Investment Grade Municipal Income Fund Inc. PORTFOLIO OF INVESTMENTS-MARCH 31, 2005 (UNAUDITED) <TABLE> PRINCIPAL AMOUNT MOODY'S S&P MATURITY INTEREST (000) RATING RATING DATES RATES VALUE ------------------------------------------------------------------------------------------------------------------- LONG-TERM MUNICIPAL BONDS - (CONTINUED) ------------------------------------------------------------------------------------------------------------------- NORTH CAROLINA - (concluded) $ 3,065 North Carolina Eastern Municipal Power Agency-Series A (Escrowed to Maturity) Baa2 AAA 01/01/21 6.400% $ 3,701,692 ------------------------------------------------------------------------------------------------------------------- 4,545 North Carolina State Public Improvement-Series A Aa1 AAA 03/01/24 4.000 4,213,670 ------------------------------------------------------------------------------------------------------------------- 15,432,052 ------------------------------------------------------------------------------------------------------------------- OHIO - 6.67% 2,185 Ohio State Higher Education -Series B Aa1 AA+ 11/01/17 5.250 2,358,533 ------------------------------------------------------------------------------------------------------------------- 8,000 Ohio State Water Development Authority-Water Quality Pollution Control Aaa AAA 06/01/24 5.000 8,346,160 ------------------------------------------------------------------------------------------------------------------- 10,704,693 ------------------------------------------------------------------------------------------------------------------- OREGON - 0.67% 1,000 Portland Sewer Systems Revenue-Series A Aaa AAA 06/01/18 5.250 1,079,000 ------------------------------------------------------------------------------------------------------------------- PENNSYLVANIA - 5.08% 5,000 Northumberland County Authority-Guaranteed Lease Revenue-Mountain View Manor Project NR NR 10/01/20 7.000 5,125,650 ------------------------------------------------------------------------------------------------------------------- 3,000 Susquehanna Area Regional Airport Authority Airport Systems Revenue-Subseries D Baa2 NR 01/01/18 5.375 3,021,480 ------------------------------------------------------------------------------------------------------------------- 8,147,130 ------------------------------------------------------------------------------------------------------------------- PUERTO RICO - 8.85% 8,010 Puerto Rico Commonwealth Refunding-Public Improvement-Series C Baa1 A- 07/01/18 5.000 8,388,232 ------------------------------------------------------------------------------------------------------------------- 3,000 Puerto Rico Housing Finance Authority-Capital Funding Program (HUD Insured) Aa3 AA 12/01/18 5.000 3,146,010 ------------------------------------------------------------------------------------------------------------------- 2,425 Puerto Rico Public Buildings Authority Revenue- Guaranteed Government Facilities-Series D (Pre-refunded with U.S. Government Securities to 07/01/12 @ 100) Baa1 A- 07/01/13 5.375 2,664,905 ------------------------------------------------------------------------------------------------------------------- 14,199,147 ------------------------------------------------------------------------------------------------------------------- RHODE ISLAND - 0.09% 145 Rhode Island Housing & Mortgage Finance Corp. Homeownership Opportunity- Series 10-A Aa2 AA+ 04/01/27 6.500 145,158 ------------------------------------------------------------------------------------------------------------------- SOUTH CAROLINA - 0.67% 1,000 Greenville Waterworks Revenue Aa1 AAA 02/01/20 5.250 1,077,090 ------------------------------------------------------------------------------------------------------------------- SOUTH DAKOTA - 2.88% 3,329 Lower Brule Sioux Tribe** NR NR 08/15/15 6.000 3,345,521 ------------------------------------------------------------------------------------------------------------------- 1,258 Standing Rock South Dakota New Public Housing** NR NR 08/07/13 6.000 1,284,221 4,629,742 ------------------------------------------------------------------------------------------------------------------- </TABLE> -------------------------------------------------------------------------------- 10 Investment Grade Municipal Income Fund Inc. PORTFOLIO OF INVESTMENTS-MARCH 31, 2005 (UNAUDITED) <TABLE> PRINCIPAL AMOUNT MOODY'S S&P MATURITY INTEREST (000) Rating RATING DATES RATES VALUE ------------------------------------------------------------------------------------------------------------------- LONG-TERM MUNICIPAL BONDS - (CONCLUDED) ------------------------------------------------------------------------------------------------------------------- TENNESSEE - 1.66% $ 2,500 Memphis-Shelby County Airport Authority Special Facilities Revenue-Federal Express Corp. Baa2 BBB 09/01/09 5.000% $ 2,672,225 ------------------------------------------------------------------------------------------------------------------- TEXAS - 16.54% 2,475 Alvin Independent School District School House-Series A Aaa AAA 02/15/17 5.375 2,668,347 ------------------------------------------------------------------------------------------------------------------- 4,000 Coastal Bend Health Facilities Development-Incarnate Word Health System (Escrowed to Maturity) (AMBAC Insured) Aaa AAA 01/01/17 6.300 4,553,520 ------------------------------------------------------------------------------------------------------------------- 1,335 Eagle Mountain & Saginaw Independent School District Unlimited Tax-School Building Aaa AAA 08/15/14 5.375 1,451,893 ------------------------------------------------------------------------------------------------------------------- 2,825 Fort Worth Water & Sewer Revenue Aa2 AA 02/15/16 5.625 3,150,383 ------------------------------------------------------------------------------------------------------------------- 6,921 Harris County Texas Lease@ NR NR 05/01/20 6.750 6,728,528 ------------------------------------------------------------------------------------------------------------------- 3,007 Houston Community College System Certificates of Participation@ NR NR 06/15/25 7.875 3,117,155 ------------------------------------------------------------------------------------------------------------------- 1,485 Lower Colorado River Authority Transmission Contract Revenue Aaa AAA 05/15/20 5.250 1,580,916 ------------------------------------------------------------------------------------------------------------------- 3,000 San Antonio Electric & Gas Revenue Aa1 AA 02/01/20 5.375 3,299,460 ------------------------------------------------------------------------------------------------------------------- 26,550,202 ------------------------------------------------------------------------------------------------------------------- WASHINGTON - 2.14% 1,920 Metropolitan Park District Tacoma (AMBAC Insured) Aaa AAA 12/01/14 6.000 2,169,850 ------------------------------------------------------------------------------------------------------------------- 1,115 Metropolitan Park District Tacoma (AMBAC Insured) Aaa AAA 12/01/16 6.000 1,258,902 ------------------------------------------------------------------------------------------------------------------- 3,428,752 ------------------------------------------------------------------------------------------------------------------- Total Long-Term Municipal Bonds (cost-$233,288,537) 237,422,819 ------------------------------------------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL NOTES - 18.56% ------------------------------------------------------------------------------------------------------------------- ALASKA - 2.68% 4,300 Valdez Marine Terminal Revenue Refunding-Exxon Pipeline Co. Project-Series C Aaa A-1+ 04/01/05 2.200* 4,300,000 ------------------------------------------------------------------------------------------------------------------- GEORGIA - 1.81% 2,900 Hapeville Development Authority Industrial Development Revenue-Hapeville Hotel Ltd. P-1 NR 04/01/05 2.240* 2,900,000 ------------------------------------------------------------------------------------------------------------------- KENTUCKY - 2.18% 3,500 Kentucky Economic Development Finance Authority Hospital Facilities Revenue Refunding- Baptist Healthcare-Series C (MBIA Insured) Aaa A-1 04/01/05 2.290* 3,500,000 ------------------------------------------------------------------------------------------------------------------- MISSOURI - 1.80% 2,890 Missouri State Health & Educational Facilities Authority Revenue-Washington University-Series A Aa1 A-1+ 04/01/05 2.300* 2,890,000 ------------------------------------------------------------------------------------------------------------------- </TABLE> -------------------------------------------------------------------------------- 11 Investment Grade Municipal Income Fund Inc. PORTFOLIO OF INVESTMENTS-MARCH 31, 2005 (UNAUDITED) <TABLE> PRINCIPAL AMOUNT MOODY'S S&P MATURITY INTEREST (000) RATING RATING DATES RATES VALUE --------------------------------------------------------------------------------------------------------------------------- SHORT-TERM MUNICIPAL NOTES - (CONCLUDED) --------------------------------------------------------------------------------------------------------------------------- NEW MEXICO - 2.43% $ 3,900 Hurley Pollution Control Revenue Updates-Kennecott Santa Fe P-1 A-1+ 04/01/05 2.300%* $ 3,900,000 --------------------------------------------------------------------------------------------------------------------------- NEW YORK - 1.18% 1,900 Port Authority New York & New Jersey Special Obligation Revenue Versatile Structure Obligation-5 VMIG-1 A-1+ 04/01/05 2.300* 1,900,000 --------------------------------------------------------------------------------------------------------------------------- TEXAS - 0.81% 1,300 North Central Health Facility Development Corp. Revenue Methodist Hospitals Dallas- Series B (MBIA Insured) Aaa A-1+ 04/01/05 2.300* 1,300,000 --------------------------------------------------------------------------------------------------------------------------- VIRGINIA - 5.67% 9,100 Roanoke Industrial Development Authority Hospital Revenue Refunding Carilion Health Systems-Series D VMIG-1 A-1+ 04/01/05 2.300* 9,100,000 --------------------------------------------------------------------------------------------------------------------------- Total Short-Term Municipal Notes (cost-$29,790,000) 29,790,000 --------------------------------------------------------------------------------------------------------------------------- Total Investments (cost-$263,078,537)-166.47% 267,212,819 --------------------------------------------------------------------------------------------------------------------------- Other assets in excess of liabilities-2.06% 3,308,044 --------------------------------------------------------------------------------------------------------------------------- Liquidation value of auction preferred shares-(68.53)% (110,000,000) --------------------------------------------------------------------------------------------------------------------------- Net Assets applicable to common shareholders-100.00% $ 160,520,863 --------------------------------------------------------------------------------------------------------------------------- </TABLE> + The maturity date reflects the mandatory date bond will be put back to issuer. ++ Floating rate security. The interest rate shown is the current rate as of March 31, 2005. # Entire or partial amount pledged as collateral for futures transactions. * 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 March 31, 2005. ** Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 2.88% of net assets applicable to common shareholders as of March 31, 2005, are considered illiquid and restricted. (See table below for more information). <TABLE> ACQUISITION MARKET COST AS A VALUE AS A PERCENTAGE PERCENTAGE ILLIQUID AND ACQUISITION ACQUISITION OF COMMON MARKET OF COMMON RESTRICTED SECURITIES DATE(S) COST NET ASSETS VALUE NET ASSETS ----------------------------------------------------------------------------------------------------- Lower Brule Sioux Tribe, 6.000%, 08/15/15 09/06/01 $3,328,712 2.07% $3,345,521 2.08% ----------------------------------------------------------------------------------------------------- Standing Rock South Dakota New Public Housing, 6.000%, 08/07/13 08/08/02 1,257,770 0.78 1,284,221 0.80 ----------------------------------------------------------------------------------------------------- $4,586,482 2.85% $4,629,742 2.88% ----------------------------------------------------------------------------------------------------- </TABLE> -------------------------------------------------------------------------------- 12 Investment Grade Municipal Income Fund Inc. PORTFOLIO OF INVESTMENTS-MARCH 31, 2005 (UNAUDITED) @ The securities detailed in the table below are considered illiquid and restricted which represent 6.13% of net assets applicable to common shareholders as of March 31, 2005. <TABLE> ACQUISITION MARKET COST AS A VALUE AS A PERCENTAGE PERCENTAGE ILLIQUID AND ACQUISITION ACQUISITION OF COMMON MARKET OF COMMON RESTRICTED SECURITIES DATE(S) COST NET ASSETS VALUE NET ASSETS ----------------------------------------------------------------------------------------------- Harris County Texas Lease, 6.750%, 05/01/20 09/07/00 $6,921,001 4.31% $6,728,528 4.19% ----------------------------------------------------------------------------------------------- Houston Community College System Certicates of Participation, 7.875%, 06/15/25 04/22/02 3,007,095 1.87 3,117,155 1.94 ----------------------------------------------------------------------------------------------- $9,928,096 6.18% $9,845,683 6.13% ----------------------------------------------------------------------------------------------- </TABLE> AMBAC - American Municipal Bond Assurance Corporation FGIC - Financial Guaranty Insurance Company FSA - Financial Security Assurance HUD - Housing and Urban Development MBIA - Municipal Bond Investors Assurance NR - Not Rated <TABLE> NUMBER OF IN EXPIRATION UNREALIZED CONTRACTS CONTRACTS TO RECEIVE EXCHANGE FOR DATE APPRECIATION ------------------------------------------------------------------------------------ FUTURES CONTRACTS U.S. Treasury Note 90 5 Year Futures $9,703,901 June 2005 $ 65,464 ------------------------------------------------------------------------------------ U.S. Treasury Note 145 10 Year Futures 15,969,376 June 2005 125,860 ------------------------------------------------------------------------------------ $191,324 ------------------------------------------------------------------------------------ </TABLE> See accompanying notes to financial statements -------------------------------------------------------------------------------- 13 Investment Grade Municipal Income Fund Inc. STATEMENT OF ASSETS AND LIABILITIES - MARCH 31, 2005 (UNAUDITED) <TABLE> ASSETS: Investments in securities, at value (cost-$263,078,537) $ 267,212,819 --------------------------------------------------------------------------------------- Cash 60,597 --------------------------------------------------------------------------------------- Receivable for interest 3,512,747 --------------------------------------------------------------------------------------- Other assets 32,704 --------------------------------------------------------------------------------------- Total assets 270,818,867 --------------------------------------------------------------------------------------- LIABILITIES: Payable to investment advisor and administrator 161,922 --------------------------------------------------------------------------------------- Payable for variation margin 111,328 --------------------------------------------------------------------------------------- Dividends payable to auction preferred shareholders 14,065 --------------------------------------------------------------------------------------- Accrued expenses and other liabilities 10,689 --------------------------------------------------------------------------------------- Total liabilities 298,004 --------------------------------------------------------------------------------------- Auction Preferred Shares Series A, B and C-2,200 non-participating shares authorized, issued and outstanding; $0.001 par value; $50,000 liquidation value per share 110,000,000 --------------------------------------------------------------------------------------- Net assets applicable to common shareholders $ 160,520,863 --------------------------------------------------------------------------------------- NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS: Common Stock-$0.001 par value; 199,998,400 shares authorized; 10,356,667 shares issued and outstanding 153,239,012 --------------------------------------------------------------------------------------- Undistributed net investment income 310,870 --------------------------------------------------------------------------------------- Accumulated net realized gain from investment activities and futures 2,645,375 --------------------------------------------------------------------------------------- Net unrealized appreciation of investments and futures 4,325,606 --------------------------------------------------------------------------------------- Net assets applicable to common shareholders $ 160,520,863 --------------------------------------------------------------------------------------- Net asset value per common share ($160,520,863 applicable to 10,356,667 common shares outstanding) $ 15.50 --------------------------------------------------------------------------------------- </TABLE> See accompanying notes to financial statements -------------------------------------------------------------------------------- 14 Investment Grade Municipal Income Fund Inc. STATEMENT OF OPERATIONS <TABLE> FOR THE SIX MONTHS ENDED MARCH 31, 2005 (UNAUDITED) --------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest $6,277,187 ---------------------------------------------------------------------------------------- EXPENSES: Investment advisory and administration fees 1,228,212 ---------------------------------------------------------------------------------------- Auction Preferred Shares expenses 159,803 ---------------------------------------------------------------------------------------- Custody and accounting 81,881 ---------------------------------------------------------------------------------------- Professional fees 33,639 ---------------------------------------------------------------------------------------- Reports and notices to shareholders 32,755 ---------------------------------------------------------------------------------------- Directors' fees 9,353 ---------------------------------------------------------------------------------------- Transfer agency fees 8,868 ---------------------------------------------------------------------------------------- Other expenses 34,481 ---------------------------------------------------------------------------------------- 1,588,992 ---------------------------------------------------------------------------------------- Less: Fee waivers by investment advisor and administrator (272,936) ---------------------------------------------------------------------------------------- Net expenses 1,316,056 ---------------------------------------------------------------------------------------- Net investment income 4,961,131 ---------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES: Net realized gains from: ---------------------------------------------------------------------------------------- Investments 2,072,748 ---------------------------------------------------------------------------------------- Futures 655,040 ---------------------------------------------------------------------------------------- Net change in unrealized appreciation/depreciation of: ---------------------------------------------------------------------------------------- Investments (4,936,154) ---------------------------------------------------------------------------------------- Futures 252,649 ---------------------------------------------------------------------------------------- Net realized and unrealized loss from investment activities (1,955,717) ---------------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS TO AUCTION PREFERRED SHAREHOLDERS FROM: Net investment income (848,457) Net realized gain from investment activities (152,322) ---------------------------------------------------------------------------------------- Total dividends and distributions to auction preferred shareholders (1,000,779) ---------------------------------------------------------------------------------------- Net increase in net assets applicable to common shareholders resulting from operations $2,004,635 --------------------------------------------------------------------------------------- </TABLE> See accompanying notes to financial statements -------------------------------------------------------------------------------- 15 Investment Grade Municipal Income Fund Inc. STATEMENT OF CHANGES IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS <TABLE> For the Six Months Ended For the March 31, 2005 Year Ended (unaudited) September 30, 2004 ------------------------------------------------------------------------------------------------ FROM OPERATIONS: Net investment income $ 4,961,131 $ 9,641,849 ------------------------------------------------------------------------------------------------ Net realized gains from investment activities and futures 2,727,788 1,889,676 ------------------------------------------------------------------------------------------------ Net change in unrealized appreciation/depreciation of investments and futures (4,683,505) (316,692) ------------------------------------------------------------------------------------------------ COMMON SHARE EQUIVALENT OF DIVIDENDS AND DISTRIBUTIONS TO AUCTION PREFERRED SHAREHOLDERS FROM: Net investment income (848,457) (863,818) ------------------------------------------------------------------------------------------------ Net realized gains from investment activities (152,322) (318,688) ------------------------------------------------------------------------------------------------ Total dividends and distributions paid to auction preferred shareholders (1,000,779) (1,182,506) ------------------------------------------------------------------------------------------------ Net increase in net assets applicable to common shareholders resulting from operations 2,004,635 10,032,327 ------------------------------------------------------------------------------------------------ DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income (4,013,209) (9,631,721) ------------------------------------------------------------------------------------------------ Net realized gains from investment activities (1,207,587) (5,116,194) ------------------------------------------------------------------------------------------------ Total dividends and distributions to common shareholders (5,220,796) (14,747,915) ------------------------------------------------------------------------------------------------ Auction preferred shares offering expenses -- (435,135) ------------------------------------------------------------------------------------------------ Net decrease in net assets applicable to common shareholders (3,216,161) (5,150,723) ------------------------------------------------------------------------------------------------ NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS: Beginning of period 163,737,024 168,887,747 ------------------------------------------------------------------------------------------------ End of period $ 160,520,863 $ 163,737,024 ------------------------------------------------------------------------------------------------ Accumulated undistributed net investment income $ 310,870 $ 211,405 ------------------------------------------------------------------------------------------------ </TABLE> See accompanying notes to financial statements -------------------------------------------------------------------------------- 16 Investment Grade Municipal Income Fund Inc. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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. There can be no assurance that the Fund's investment objective will be achieved. In the normal course of business the Fund may enter into contracts that contain a variety of representations or that provide indemnification for certain liabilities. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires the Fund's 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 last reported sale prices, current market quotations or valuations from computerized "matrix" systems that derive values based on comparable securities. A matrix system incorporates parameters such as security quality, maturity and coupon, and/or research and evaluations by its staff, including review of broker-dealer market price quotations, if available, in determining the valuation of the portfolio 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. Securities traded in the over-the-counter ("OTC") market are valued at the last bid price available on the valuation date prior to valuation. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME-Investment transactions are recorded on the trade date. Realized gains and losses from investment transactions -------------------------------------------------------------------------------- 17 Investment Grade Municipal Income Fund Inc. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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. FUTURES CONTRACTS-Upon entering into a financial futures contract, the Fund is required to deposit in a segregated account with its custodian, in the name of the futures broker through which the transaction was effected, an amount of cash and/or municipal obligations equal to a certain percentage of the contract amount. This amount is known as the "initial margin." Subsequent payments, known as "variation margin" are made or received by the Fund each day, depending on the daily fluctuations in the value of the underlying financial futures contracts. Such variation margin is recorded for financial statement purposes on a daily basis as unrealized gain or loss until the financial futures contract is closed, at which time the net gain or loss is reclassified to realized gain or loss on futures. Variation margin calls could be substantial in the event of adverse price movements. Using financial futures contracts involves various market risks. If the Fund was unable to liquidate a futures position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, the Fund would continue to be required to make variation margin payments and might be required to maintain the position being hedged or to maintain cash or securities in a segregated account. Furthermore, certain characteristics of the futures market might increase the risk that movements in the prices of the financial futures contracts might not correlate perfectly with movements in the prices of the investments being hedged, including temporary price distortion. 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 auction preferred shares. The dividend rate on the common stock is adjusted as necessary to reflect the earnings rate of the Fund. Dividends and distributions to common shareholders are recorded on the ex-dividend date. Dividends to auction 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 U.S. generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassification. -------------------------------------------------------------------------------- 18 Investment Grade Municipal Income Fund Inc. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 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 applicable to holders of common and auction preferred shares. UBS Global AM has agreed to waive 0.20% of the advisory and administration fee, so that the Fund's effective fee is 0.70% of average weekly net assets applicable to holders of common and auction preferred shares. This waiver will continue indefinitely unless the Board agrees to any change. At March 31, 2005, the Fund owed UBS Global AM $161,922, which is $208,186 investment advisory and administration fees less fees waived of $46,264. For the six months ended March 31, 2005, UBS Global AM waived $272,936 in investment advisory and administration fees from the Fund. ADDITIONAL INFORMATION REGARDING COMPENSATION TO AFFILIATE OF A BOARD MEMBER Effective March 1, 2005, Professor Meyer Feldberg accepted the position of senior advisor to Morgan Stanley, resulting in his becoming an interested director of the Fund. The Fund has been informed that Professor Feldberg's role at Morgan Stanley does not involve matters directly affecting any UBS funds. UBS Global AM executes Fund portfolio transactions through Morgan Stanley based on that firm's ability to provide best execution of the transactions. During the six months ended March 31, 2005, the Fund purchased and sold certain securities (e.g., fixed income securities) in principal trades with Morgan Stanley having an aggregate value of $24,855,800. Morgan Stanley received compensation for these trades in the form of a "mark-up" or "mark-down" of the price of the securities. Although the precise amount of this compensation is not generally known by UBS Global AM, UBS Global AM believes that under normal circumstances it represents a small portion of the total value of the transactions. -------------------------------------------------------------------------------- 19 Investment Grade Municipal Income Fund Inc. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) AUCTION PREFERRED SHARES The Fund has issued 800 shares of auction preferred shares Series A, 800 shares of auction preferred shares Series B, and 600 shares of auction preferred shares Series C, which are referred to herein collectively as the "APS." All shares of each series of APS have a liquidation preference of $50,000 per share plus an amount equal to accumulated but unpaid dividends upon liquidation. Dividends, which are cumulative, are generally reset every 7 days for each Series of APS. Dividend rates ranged from 1.390% to 2.450% for the six months ended March 31, 2005. 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 APS will vote separately as a class on certain matters, as required by law. The holders of the APS have the right to elect two directors of the Fund. The redemption of the Fund's APS is outside of the control of the Fund because it is redeemable upon the occurrence of an event that is not solely within the control of the Fund. Offering expenses of $435,135 were charged to paid-in-capital of the Fund in connection with the offering of APS during the year ended September 30, 2004. PURCHASES AND SALES OF SECURITIES For the six months ended March 31, 2005, aggregate purchases and sales of portfolio securities, excluding short-term securities, were $54,774,785 and $76,365,286 respectively. FEDERAL TAX STATUS The Fund intends to distribute substantially all of its tax-exempt income and any taxable income and to comply with the other requirements of the Internal Revenue Code applicable to regulated investment companies. Accordingly, no provision for federal income taxes is required. In addition, by distributing during each calendar year substantially all of its net investment income, net realized capital gains and certain other amounts, if any, the Fund intends not to be subject to a federal excise tax. -------------------------------------------------------------------------------- 20 Investment Grade Municipal Income Fund Inc. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) The tax character of distributions paid during the fiscal year ended September 30, 2004 was as follows: DISTRIBUTIONS PAID FROM: 2004 ------------------------------------------- Tax-exempt income $10,491,297 ------------------------------------------- Ordinary income 4,242 ------------------------------------------- Net long-term capital gains 5,434,882 ------------------------------------------- Total distributions paid $15,930,421 ------------------------------------------- The tax character of distributions paid and the components of accumulated earnings (deficit) on a tax basis for the current fiscal year will be calculated after the Fund's fiscal year ending September 30, 2005. For federal income tax purposes, which was substantially the same for book purposes, the tax cost of investments and the components of net unrealized appreciation of investments at March 31, 2005 were as follows: Tax cost of investments $263,078,537 ------------------------------------------- Gross unrealized appreciation 5,435,834 ------------------------------ ------------ Gross unrealized depreciation (1,301,552) ------------------------------------------- Net unrealized appreciation $4,134,282 ------------------------------------------- -------------------------------------------------------------------------------- 21 Investment Grade Municipal Income Fund Inc. FINANCIAL HIGHLIGHTS Selected data for a share of common stock outstanding throughout each period is presented below: <TABLE> FOR THE SIX MONTHS ENDED MARCH 31, 2005 (UNAUDITED) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $15.81 ---------------------------------------------------------------------------------------------------- Net investment income 0.48 ---------------------------------------------------------------------------------------------------- Net realized and unrealized gains (losses) from investment activities (0.19) ---------------------------------------------------------------------------------------------------- Common share equivalent of dividends and distributions paid to auction preferred shareholders from: Net investment income (0.08) ---------------------------------------------------------------------------------------------------- Net realized gains from investment activities (0.01) ---------------------------------------------------------------------------------------------------- Total dividends and distributions paid to auction preferred shareholders (0.09) ---------------------------------------------------------------------------------------------------- Net increase from operations 0.20 ---------------------------------------------------------------------------------------------------- Dividends and distributions paid to common shareholders from: Net investment income (0.39) ---------------------------------------------------------------------------------------------------- Net realized gains from investment activities (0.12) ---------------------------------------------------------------------------------------------------- Total dividends and distributions paid to common shareholders (0.51) ---------------------------------------------------------------------------------------------------- Auction preferred shares offering expenses - ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $15.50 ---------------------------------------------------------------------------------------------------- MARKET VALUE, END OF PERIOD $13.17 ---------------------------------------------------------------------------------------------------- TOTAL INVESTMENT RETURN(2) (4.11)% ---------------------------------------------------------------------------------------------------- RATIO TO AVERAGE NET ASSETS ATTRIBUTABLE TO COMMON SHARES: Total expenses, net of fee waivers by advisor 1.61% ---------------------------------------------------------------------------------------------------- Total expenses, before fee waivers by advisor 1.95% ---------------------------------------------------------------------------------------------------- Net investment income before auction preferred shares dividends 6.08% ---------------------------------------------------------------------------------------------------- Auction preferred shares dividends from net investment income 1.04% ---------------------------------------------------------------------------------------------------- Net investment income available to common shareholders, net of fee waivers by advisor 5.04% ---------------------------------------------------------------------------------------------------- Net investment income available to common shareholders, before fee waivers by advisor 4.70% ---------------------------------------------------------------------------------------------------- SUPPLEMENTAL DATA: Net assets applicable to common shareholders, end of period (000's) $160,521 ---------------------------------------------------------------------------------------------------- Portfolio turnover 21% ---------------------------------------------------------------------------------------------------- Asset coverage per share of auction preferred shares, end of period $122,964 ---------------------------------------------------------------------------------------------------- </TABLE> (1) Distribution equal to $0.0042 per share. (2) Total investment return is calculated assuming a $10,000 purchase of common stock at the current market price on the first day of each period reported and a sale at the current market price on the last day of each period reported, and assuming reinvestment of dividends and other distributions to common shareholders at prices obtained under the Fund's Dividend Reinvestment Plan. Total investment return does not reflect brokerage commissions and has not been annualized for the period of less than one year. Returns do not reflect the deduction of taxes that a shareholder could pay on Fund distributions. -------------------------------------------------------------------------------- 22 Investment Grade Municipal Income Fund Inc. <TABLE> FOR THE YEARS ENDED SEPTEMBER 30, ---------------------------------------------------------------------------- 2004 2003 2002 2001 2000 ---------------------------------------------------------------------------- $16.31 $16.46 $16.15 $15.91 $16.09 ---------------------------------------------------------------------------- 0.93 0.95 1.11 1.17 1.18 ---------------------------------------------------------------------------- 0.14 0.13 0.29 0.46 (0.13) ---------------------------------------------------------------------------- (0.08) (0.07) (0.12) (0.23) (0.31) ---------------------------------------------------------------------------- (0.03) (0.02) (0.01) (0.07) (0.00)(1) ---------------------------------------------------------------------------- (0.11) (0.09) (0.13) (0.30) (0.31) ---------------------------------------------------------------------------- 0.96 0.99 1.27 1.33 0.74 ---------------------------------------------------------------------------- (0.93) (0.96) (0.93) (0.90) (0.90) ---------------------------------------------------------------------------- (0.49) (0.18) (0.03) (0.19) (0.02) ---------------------------------------------------------------------------- (1.42) (1.14) (0.96) (1.09) (0.92) ---------------------------------------------------------------------------- (0.04) - - - - ---------------------------------------------------------------------------- $15.81 $16.31 $16.46 $ 16.15 $15.91 ---------------------------------------------------------------------------- $14.25 $14.86 $15.60 $ 15.39 $13.75 ---------------------------------------------------------------------------- 5.57% 2.76% 7.96% 20.59% 5.90% ---------------------------------------------------------------------------- 1.53% 1.45% 1.48% 1.49% 1.52% ---------------------------------------------------------------------------- 1.86% 1.66% 1.67% 1.68% 1.71% ---------------------------------------------------------------------------- 5.91% 5.89% 6.89% 7.30% 7.48% ---------------------------------------------------------------------------- 0.53% 0.44% 0.73% 1.42% 1.99% ---------------------------------------------------------------------------- 5.38% 5.45% 6.16% 5.88% 5.49% ---------------------------------------------------------------------------- 5.05% 5.24% 5.97% 5.69% 5.30% ---------------------------------------------------------------------------- $163,737 $168,888 $170,454 $167,295 $164,769 ---------------------------------------------------------------------------- 45% 51% 21% 8% 14% ---------------------------------------------------------------------------- $124,426 $155,555 $156,534 $154,559 $152,980 ---------------------------------------------------------------------------- </TABLE> -------------------------------------------------------------------------------- 23 Investment Grade Municipal Income Fund Inc. GENERAL INFORMATION (UNAUDITED) THE FUND Investment Grade Municipal Income Fund Inc. (the "Fund") is a diversified, closed-end management investment company whose shares trade on the New York Stock Exchange ("NYSE"). The Fund's investment objective is to achieve a high level of current income that is exempt from federal income tax, consistent with the preservation of capital. The Fund's investment advisor and administrator is UBS Global Asset Management (US) Inc. ("UBS Global AM"), an indirect wholly owned asset management subsidiary of UBS AG, which had approximately $50.7 billion in assets under management as of March 31, 2005. SHAREHOLDER INFORMATION The Fund's NYSE trading symbol is "PPM." Comparative net asset value and market price information about the Fund is published weekly in The Wall Street Journal, The New York Times and Barron's, as well as in numerous other publications. An annual meeting of shareholders of the Fund was held on January 20, 2005. At the meeting Margo N. Alexander, Richard Q. Armstrong, David J. Beaubien, Richard R. Burt, Meyer Feldberg, Carl W. Schafer and William D. White were elected to serve as directors until the next annual meeting of shareholders, or until their successors are elected and qualified or until they resign or are otherwise removed. The shares were voted as indicated below: COMMON STOCK AND APS SHARES VOTING AS A SINGLE CLASS <TABLE> SHARES FOR AS A SHARES TO VOTE FOR OR WITHHOLD SHARES % OF TOTAL WITHHOLD AUTHORITY IN THE ELECTION OF: VOTED FOR SHARES VOTED AUTHORITY --------------------------------------------------------------------------------------- Richard Q. Armstrong 9,626,381.372 92.9289% 236,538.439 --------------------------------------------------------------------------------------- David J. Beaubien 9,626,785.372 92.9328% 236,134.439 --------------------------------------------------------------------------------------- Richard R. Burt 9,623,713.372 92.9031% 239,206.439 --------------------------------------------------------------------------------------- Carl W. Schafer 9,623,273.372 92.8989% 239,646.439 --------------------------------------------------------------------------------------- William D. White 9,626,785.372 92.9328% 236,134.439 --------------------------------------------------------------------------------------- </TABLE> AUCTION PREFERRED SHARES <TABLE> SHARES FOR AS A SHARES TO VOTE FOR OR WITHHOLD SHARES % OF TOTAL WITHHOLD AUTHORITY IN THE ELECTION OF: VOTED FOR SHARES VOTED AUTHORITY ------------------------------------------------------------------------------ Margo N. Alexander 1,870 85.000% 0 ------------------------------------------------------------------------------ Meyer Feldberg 1,870 85.000% 0 ------------------------------------------------------------------------------ </TABLE> The Fund is not aware of any broker non-votes. (Broker non-votes are shares held in street name for which the Broker indicates that instructions have not been received from the beneficial owners or other persons entitled to vote and for which the broker does not have discretionary voting authority.) -------------------------------------------------------------------------------- 24 Investment Grade Municipal Income Fund Inc. GENERAL INFORMATION (UNAUDITED) PROXY VOTING POLICIES AND PROCEDURES AND RECORD You may obtain a description of the Fund's proxy voting policies and procedures (and information regarding how the Fund voted any proxies related to portfolio securities during the 12-month period ended June 30, 2004), without charge, upon request by contacting the Fund directly at 1-800-647-1568, online on the Fund's Web site: www.ubs.com/ubsglobalam-proxy, or on the EDGAR Database on the SEC's Web site (http://www.sec.gov). QUARTERLY FORM N-Q PORTFOLIO SCHEDULE The Fund will file its complete schedule of portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. Additionally, you may obtain copies of Forms N-Q from the Fund upon request by calling 1-800-647-1568. 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 Financial Services 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 the 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. -------------------------------------------------------------------------------- 25 Investment Grade Municipal Income Fund Inc. GENERAL INFORMATION (UNAUDITED) 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. -------------------------------------------------------------------------------- 26 DIRECTORS Richard Q. Armstrong Meyer Feldberg Chairman Carl W. Schafer Margo N. Alexander William D. White David J. Beaubien Richard R. Burt PRINCIPAL OFFICERS W. Douglas Beck Elbridge T. Gerry III President Vice President Mark F. Kemper William Veronda Vice President and Secretary Vice President Thomas Disbrow Vice President and Treasurer INVESTMENT ADVISOR AND ADMINISTRATOR UBS Global Asset Management (US) Inc. 51 West 52nd Street New York, New York 10019-6114 The financial information included herein is taken from the records of the Fund without examination by independent registered public accountants who do not express an opinion thereon. Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that from time to time the Fund may purchase shares of its common stock in the open market at market prices. This report is sent to the shareholders of the Fund for their information. It is not a prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund or of any securities mentioned in this report. (copyright) 2005 UBS Global Asset Management (US) Inc. All rights reserved. ------------- [UBS LOGO] Presorted Standard UBS Global Asset Management (US) Inc. US Postage 51 West 52nd Street PAID New York, NY 10019-6114 Smithtown, NY Permit 700 ------------- ITEM 2. CODE OF ETHICS. ------------------------ Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. ------------------------------------------ Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. ------------------------------------------------ Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. ---------------------------------------------- Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. ITEM 6. SCHEDULE OF INVESTMENTS. --------------------------------- Included as part of the report to shareholders filed under Item 1 of this form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END -------------------------------------------------------------------------- MANAGEMENT INVESTMENT COMPANIES. -------------------------------- Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. -------------------------------------------------------------------------- Form N-CSR disclosure requirement not yet effective with respect to the registrant. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT --------------------------------------------------------------------------- COMPANY AND AFFILIATED PURCHASERS. ---------------------------------- There were no purchases made by or on behalf of the registrant or any "affiliated purchaser," as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, of shares of the registrant's equity securities made in the period covered by this report. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. -------------------------------------------------------------- The registrant's Board has established a Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee will consider nominees recommended by shareholders if a vacancy occurs among those board members who are not "interested persons" as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended. In order to recommend a nominee, a shareholder should send a letter to the chairperson of the Nominating and Corporate Governance Committee, Richard R. Burt, care of the Secretary of the registrant at UBS Global Asset Management (US) Inc., 51 West 52nd Street, New York, New York 10019-6114, and indicate on the envelope "Nominating and Corporate Governance Committee." The shareholder's letter should state the nominee's name and should include the nominee's resume or curriculum vitae, and must be accompanied by a written consent of the individual to stand for election if nominated for the Board and to serve if elected by shareholders. ITEM 11. CONTROLS AND PROCEDURES. ---------------------------------- (a) The registrant's principal executive officer and principal financial officer have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document. (b) The registrant's principal executive officer and principal financial officer are aware of no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. ------------------- (a) (1) Code of Ethics - Form N-CSR disclosure requirement not applicable to this filing of a semi-annual report. (a) (2) Certifications of principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit EX-99.CERT. (a) (3) Written solicitation to purchase securities under Rule 23c-1 under the Investment Company Act of 1940 sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons - The registrant has not engaged in such a solicitation during the period covered by this report. (b) Certifications of principal executive officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is attached hereto as Exhibit EX-99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Investment Grade Municipal Income Fund Inc. By: /s/ W. Douglas Beck -------------------- W. Douglas Beck President Date: June 8, 2005 ------------ Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ W. Douglas Beck -------------------- W. Douglas Beck President Date: June 8, 2005 ------------ By: /s/ Thomas Disbrow ------------------ Thomas Disbrow Vice President and Treasurer Date: June 8, 2005 ------------