A municipal bond fund yesterday elected simultaneously to fire and not to fire UBS Global Asset Management Inc. as its adviser.

A coup of dissident shareholders in the closed-end Investment Grade Municipal Income Fund Inc. sought to wrest control of the fund from the embattled investment bank.

In a proxy vote at the fund's annual meeting Thursday, a proposal to terminate the fund's advisory agreement with UBS failed to obtain the required two-thirds majority.

A proposal to renew the contract with UBS also failed.

A precatory, or advisory, proposal for the fund not to retain UBS passed by a narrow majority, the fund said.

The fund for now is keeping UBS as its adviser, and said it will "carefully consider the recommendation in light of these results."

Some of the fund's biggest institutional shareholders, including Western Investment LLC and Karpus Management Inc., launched a proxy battle over the fund last year.

The shareholders' complaints focused on UBS AG' legal travails and on the discrepancy between the value of the fund's assets and the price the fund's shares commanded on the New York Stock Exchange.

While shares of closed-end funds often trade at discounts to their net asset values, the shareholders argued the Investment Grade Municipal Income Fund's discount was unusually steep.

The shareholders asserted this discount represented the market's skepticism that the fund's board would take steps to maximize the value of the fund, which has $193.3 million in assets.

The shareholders advocated booting UBS and considering liquidating some assets or "open-ending" the fund - meaning convert to a mutual fund that shareholders could redeem at net asset value.

UBS argued that liquidating or open-ending the fund would reward raider hedge funds at the expense of long-term shareholders.

Cecilia L. Gondor, executive vice president at Thomas J. Herzfeld Advisors Inc., said much of the confusion in Thursday's vote likely stems from the apathy of some of the shareholders of the fund's 1,800 auction-rate preferred shares.

Like many closed-end funds, Investment Grade Municipal Fund supplement the capital raised from selling common shares by borrowing money through ARPS.

Many investors in ARPS, whose interest rates reset regularly at auctions, thought they were putting money into something conservative, along the lines of a money-market fund, Gondor said.

They did not expect to become embroiled in a shareholder dispute, and often do not even open mail from the fund, she said.

The fund nominated four board members for election by all shareholders and two for election by ARPS holders.

The four incumbents up for election by all shareholders were re-elected. Not enough ARPS holders showed up to form a quorum to elect the remaining two.

The meeting was adjourned until Jan. 21 at 10 a.m. Only the election of the two board members representing ARPS shareholders will be considered at the meeting, the fund said.

These results are preliminary and subject to approval by IVS Associates Inc., which is inspecting the election, the fund said.

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